Most average consumers have been fixated on the high prices of gasoline in 2022 however, there is another crucial fuel that has been averaging a dollar more per gallon which is diesel fuel.
Diesel fuel, commonly known as what powers our trucking industry, is fundamental to powering the global economy. Diesel and its different molecular variations are integral in powering our freight trucks, cargo jets, barges, farming and construction equipment, industrial machines, buses, home heating systems, military vehicles and the list goes on. The increase of powering more than just the transportation of consumer goods, creates a ripple effect on the economy, worsening inflation and driving prices even higher.
Diesel was first patented in 1892 by Rudolf Diesel, a German inventor and mechanical engineer, as a distillate fuel oil for motor vehicles with compression-ignition engines. The fuel is thicker and heavier than regular gasoline providing more power and mileage per gallon, much needed for engines requiring power rather than performance. It is less flammable than gas as well and evaporates much more slowly.
With diesel being so essential to the global economy, why does diesel fuel have such a higher price tag than regular gasoline? The answer comes down to three key drivers: supply and demand, manufacturing, and taxes.
The U.S. remains heavily reliant on gasoline with over 90% of American vehicles being powered by gasoline, however other countries continue high consumer usage of diesel. European vehicles continue to use diesel-powered passenger vehicles. Developing countries and countries experiencing large growth like China and India have placed heavy burdens on the demand of diesel for commercial use. When the economy is growing, so is the demand for products and services, placing heavier demand on diesel powered trucks and machinery. As we transition into the cooler months ahead, demand for diesel also increases due to home heating systems, a predictable, seasonal fluctuation.
On the supply side, one barrel of crude oil refined creates about 40% less volume of diesel than gasoline. While the U.S. imports crude oil, most of diesel we consume is refined right here within our borders.
Prior to 2004, diesel was significantly cheaper and at a point, cheaper than gasoline. Manufacturing or refining diesel products has become more expensive since 2006, when the U.S. EPA began transitioning to ultra-low sulfur diesel (ULSD). The decision was made due to the heightened levels of airborne sulfur, which are toxic for us and the environment. Sulfur content in diesel products is now required to be 15 parts per million and has reduced toxic sulfur emissions be over 90%. The decision, however, produces a lower energy density fuel lowering the fuel economy for diesel powered engines as well as increasing the production costs for refiners.
Since 1993, the federal motor fuel excise tax has imposed an extra 18.3 cents on gasoline and 24.3 cents on diesel. These tax revenues support the Highway Trust Fund, helping maintain and finance our highways. State taxes on gas and diesel follow the same model but fluctuate greatly from state to state. In the Commonwealth of Pennsylvania, an extra 57.6 cents per gallon is added to gasoline sales and 74.1 cents to diesel. The higher difference for diesel taxes is largely contributed to carbon emissions, a difference that has recently been closed due to the advent of Selective Catalytic Reduction systems and the use of Diesel Exhaust Fluid in newer diesel engines. Higher diesel taxes can also be contributed to the higher rate of wear and tear created by heavier diesel vehicles.
These three factors have the largest effect on the prices of diesel, however current geopolitical conditions, lower than normal refinery capacities and the post-Covid energy demand have shrunk global oil supplies and pushed prices up. Many other factors, albeit smaller, also contribute to higher diesel prices. Stations themselves typically sell diesel products at a higher profit margin than regular gasoline products, while heavily discounting the product to larger trucking fleets. It is in times like these that smaller and medium trucking fleets need to be mindful of their fueling expenses. Taking the time to review fuel expenses and how you are purchasing fuel can be a critical necessity for running a profitable business. Guttman Energy’s fleet fuel card can be a vital advantage to small to medium sized fleet.