Diesel Fuel Prices

2011 has kicked off with rising diesel fuel prices. According to the Energy Information Administration (EIA), by mid-January diesel prices had risen for a fifth consecutive week. The average price per gallon reached $3.33, or 53 cents higher than the same period in 2010. Throughout 2010, retail diesel fuel prices were sold at a premium over gasoline as demand was higher in the period.

In early January 2011, average diesel fuel prices were 23.9 cents higher than the gasoline average. One of the explanations for high diesel prices is that diesel is now key to giant guzzlers such as China. In Europe diesel consumption has also grown stronger, attracting imports from the U.S.

It hasn’t always been so and in fact diesel fuel prices were always lower than gasoline prices. That was the case until 2004, according to information provided by Energy Information Administration (EIA). Since then, global demand has grown and demand has outstripped supply capacity. On top of that, transition to ultra-low sulfur diesel fuel in the U.S. has increased production costs, although cleaner gasoline requirements have also inflated the price of gasoline.

Finally, higher taxation impacts on diesel fuel prices as Federal excise tax on diesel is 6 cents higher per gallon (24.4 cents) than the tax levied on gasoline. The EIA says when the economic slowdown reduced demand for diesel fuel in 2009, fuel prices dropped below gasoline prices on retail level, which seems to indicate that high demand is the main factor behind high diesel fuel prices.