Diesel Fuel Prices Explained
After starting the year with a plateaued price trend, the U.S. Energy Information Administration saw larger diesel fuel price hikes in 2024 as global stocks and other middle distillates decreased. Diesel, heating oil, and gas oil inventories all show below-normal inventories.
The U.S. has a deficit stock of -16%, Europe -5%, and Singapore -33%. The continuous drone attacks by the Ukrainian tropes in Russian petroleum refineries and the Houthi’s threat in the Red Sea and the Gulf of Aden disrupted the East-West flow of the supply chain.
Adding pressure to diesel fuel price volatility is the anticipated revival of the North American and Western European industrial economies which largely rely on diesel fuel in their operations.
Why are diesel fuel prices fluctuating?
1. Crude Oil
The largest component in the retail price of diesel fuel. Crude oil accounts for about 50% of the final diesel fuel price. Both diesel fuel and gasoline are byproducts of refining crude oil. Crude oil is extracted by drilling deep into the ground in an area where the natural resource is abundant.
After extraction, refineries bought it to process it into other products such as gasoline or diesel fuel. The price of the crude oil that is the base ingredient in diesel fuel is responsible for the bulk retail price that a consumer will pay at the pump.
Additionally, worldwide crude oil demand and supply determine crude oil prices. Furthermore, the economic conditions contribute to the demand for petroleum products made from crude oil. Overall, diesel fuel is a major transportation fuel. Thus, its demand and prices generally follow economic trends.
2. Refining Costs
To turn crude oil into diesel fuel, it must go through a refinement process. The cost of running a petroleum refinery is not cheap. Coupled with human labor and equipment costs, it needs a considerable amount of money. Additionally, carbon emission costs add to the tab of the commodity’s production value. Thus, these compounding factors all contribute to diesel fuel fluctuations.
3. Distribution, Marketing, and Retail Station
Like any other product, it takes time and money to get diesel fuel to market. Costs for things such as transportation and distribution that allow the fuel to get into consumers’ vehicles play a big role in determining the final diesel fuel price.
4. Other Seasonal Demands
During the fall and winter, the demand for heating oil affects diesel fuel prices as these commodities are produced at the same time. Therefore, seasonal increases in heating oil demand also put pressure on the diesel fuel market as refiners need to double production to meet the surging demand. Additionally, seasonal swings in farmers’ demand for diesel fuel, particularly in spring and summer, influence diesel fuel prices too.
Apart from the extraction, refinery process, and seasonal demands, tax is another component of diesel fuel value. Taxes are similar to any other cost incurred in the process of getting a product to market but charges vary across every country, federal state, city, and local levels. Thus, taxation value is another thing that contributes to the varying diesel fuel costs.
Which variables impact the price of diesel fuel?
- Crude Oil
- Refining Costs
- Distribution, Marketing, and Retail Station
- Other Seasonal Demands
- Geopolitical Events
Where does diesel fuel come from?
Widely used in the United States for agriculture, transportation, construction, and military purposes, the country’s petroleum consumption accounted for 20% of diesel fuel. While it has a huge consumer base in the US, diesel and its engines had its start in Europe.
Generally, diesel is a petroleum product like gasoline. However, they vary as end products according to their production.
Both diesel and gasoline start as crude oil.
In the refinery, the distillers process the crude oil into lighter and heavier liquids. Gasoline comes from the lightest liquid. Diesel fuel comes from the second heaviest component. Diesel fuel is more stable and less flammable than gasoline. In application, diesel engines must use compression and high temperatures to ignite the dense fuel.
For that reason, they’re more expensive to produce and buy at the consumer level. However, the tradeoff is fuel efficiency. Diesel fuel’s relative density means the engines get more miles per gallon than gas-powered models.
Origin and Discovery
It all started in the first built oil refinery in Scotland in 1851 where kerosene and diesel were byproducts of oil. Generally, diesel was discarded as people were into extracting paraffin for oil lamps.
This practice lasted for more than 40 years until Rudolf Diesel, a German inventor and mechanical engineer invented a diesel engine that compressed air to ignite the dense diesel fuel without needing a spark. This invention defied the efficiency of internal combustion engines and leveraged the capability of diesel engines.
The military industry in France and Germany first started using diesel fuel in diesel engines. Technology improvements revolutionized its capacity and now diesel fuel is present in most industry applications.
What are the uses of diesel fuel?
Diesel fuel is used in a wide variety of industries, including:
1. Transportation – Almost 60% of diesel fuel consumption largely goes to the transportation sector. Diesel is the primary fuel of heavy-duty vehicles such as trucks, buses, and trains. Additionally, passenger-type vehicles such as SUVs use diesel as their main fuel.
2. Construction – Power heavy machinery such as excavators, bulldozers, and cranes operate using diesel fuel.
3. Agriculture – Farm equipment such as power tractors, combines or harvesters, and sprayers rely heavily on diesel.
4. Manufacturing – The food and manufacturing industry uses diesel fuel to generate electricity and to power industrial equipment.
5. Mining – Diesel fuel accounts for 45% of the total production cost in mining as it powers drilling equipment, haul trucks, and loaders.
6. Military Applications – Then and now, diesel fuel is a reliable pal in the mobility of military operations. It is largely used in land, water, and air security activities.
Presently, diesel fuel comes from the top country producers which are the United States, China, India, Russia, and Germany.
What is the future price of diesel fuel?
Diesel fuel is a vital commodity for the global economy, powering transportation, agriculture, and industry. And for that, its prices are closely monitored by businesses and consumers alike. Records show the increased usage and manufacturing of EV vehicles as a way to combat the decreasing non-renewable fuel resources and decarbonize air quality.
However, other industries always fuel diesel production as it’s a major component in most manufacturing activities that cater to our vital needs. The demand and supply side factors are major present and future movers of diesel fuel. Additionally, most major producers of fuel are located in geographically and politically fragile sites which frequently troubles the supply chain.
Overall, energy market analysts predicted a favorable diesel market price of $6 per gallon in 2030.