What Impacts the Price of Diesel Fuel?

Nov 12, 2020 | Diesel Cars

Are you curious about what impacts the price of diesel fuel? Diesel fuel is used by millions of drivers across the United States, and its price fluctuation is a good indicator of how the economy is doing.

 Since diesel gas is considered the “fuel of the industry.” Due to its use in the transportation industry, the supply and demand for diesel fuel can tell you a lot about the economy’s future. 

If you’re curious, keep scrolling because, in this article, we are letting you know what affects the price of diesel fuel.

Why Is Diesel Fuel Important

Diesel fuel is important to the U.S. economy for many reasons. Diesel fuel is a transportation fuel and offers a broad range of efficiency, safety, and performance for diesel-driven vehicles. 

Diesel engines power most farming equipment, trucks used for transportation, and military vehicles. Diesel engines power most farming equipment, trucks used for transportation, and military vehicles.

The bottom line is, diesel powers a lot of industries that keep are our economy flowing and healthy. Without diesel fuel, one-third of America’s industries would be in jeopardy.

What Affects the Price of Diesel Fuel?

When it comes to the price of diesel fuel, four components affect the price of diesel fuel. Let’s take a look at these four components.

The Cost of Crude Oil

Crude Oil is an unrefined petroleum fossil fuel that can be refined to produce usable fuel such as diesel and gasoline. Crude oil can be found in various locations such as deep-sea wells, oil wells, and shale fracturing.

The cost of barrels of crude oil varies. Typically, barrels from the Saudi Arabian desserts go for about $20 per barrel and can get as expensive as $90 per barrel for deep-water-well harvested oil.

The cost of crude oil is the biggest component when it comes to the price of diesel fuel.

The Cost to Refine Crude Oil

The process of refining is simple. You’re simply taking the raw crude oil and turning it into diesel fuel or gasoline. Refining costs can vary quite a bit. Diesel tends to be cheaper than gasoline because diesel it’s less volatile and heavier. This makes diesel easier to refine than other crude oil products.

Although the production of Ultra-Low Sulfur Diesel (ULSD), introduced in 2006, increased production cost due to more refining needs.

It all depends on what additives and specifications are used to enhance the finished product. The cost to refine diesel is about $.49 per gallon.

Operational Costs and Competition

Local market condition and location also affects the retail price of diesel fuel. If there are gas stations among other local competition, this can affect the fluctuation of the price. These costs can include the following.

  • Wages
  • Salaries
  • Equipment
  • Benefits
  • Rent/leasing costs
  • Insurance
  • Overhead costs
  • State and local fees
  • taxes

If you are a small operation with not a lot of overhead costs, you can make prices cheaper and beat the local competition.

Different traffic patterns at certain locations can affect the retail price of diesel. High-volume truck stops with fleets of commercial vehicles can sell diesel at lower prices than the smaller gas stations.

Tax Costs

Taxes are also a factor for the higher cost of diesel. The federal tax is higher than gasoline, and there’s no telling if there may be another tax increase.

The tax on diesel sits at .24.4 cents per gallon while gasoline is .18.4 cents. This is a huge difference and drives the price up for retail and wholesale prices.

Supply and Demand

The prices of diesel fuel and, among other fuels, are more volatile than any other U.S. commodity. This is because most company fleets and the U.S. transportation fleet are heavily dependant on crude oil.

If crude oil supplies experience a decline for refinery problems or lagging imports, wholesalers will bid high for the remaining supplies. 

This will drive prices up for retailers and even higher for the consumer. It also depends on location because getting petroleum to different parts of the country can cost more to transport it, driving prices up.

Seasonality

The U.S. diesel fuel market is fairly consistent throughout the year, but there can be some major fluctuation during the winter months. This is because crude oil is used for heating oil, and the heating industry will take a big chunk of the supply during those cold months. 

This means prices may jump up because of a supply-and-demand issue. 

In certain regions, seasonal demands for farmers and their equipment can also influence diesel fuel prices.

Transportation Costs

Transportation costs can also influence increases in the cost of diesel. This is based on the distance between the sources of the supply and the retail location. 

Areas near the Gulf Coast or West Coast tend to have higher prices because they are so far away from the location supply.

If you want to save on diesel, make sure your operations are near a diesel supply plant or crude oil refinery.

When Is The Best Time to Save on Diesel Fuel?

The U.S market for diesel is fairly stable. Yes, there’s lots that impact the price of diesel, but the best way to save is to track the diesel prices on a national average and pick which time of the year is the cheapest for the price of diesel fuel.

If you use diesel for your operational fleet, consider moving your location near a diesel supply plant or close to ports that import crude oil. 

If you are a consumer who stocks fuel, avoid doing this during the winter months to avoid seasonal demand. Do you have a diesel truck and need more insight on it? Visit our site, and get to know more about the benefits of your truck and how to get the best of it.

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