Cost of Diesel

Silver Fox asked a great question in the comments a couple of weeks ago:

I’m wondering why the price of diesel is higher than gasoline right now, when it was the other way around for so long?

TWIP to the rescue!

At winter’s end, we normally expect gasoline and diesel fuel prices to be converging, with gasoline prices then rising above diesel for the remainder of the summer. However, diesel fuel prices have continued to rise at a quicker pace than gasoline through the late winter/early spring period, and the diesel fuel premium over gasoline is now in the 70 cent per gallon range….

Factors in both gasoline and distillate are contributing to the current and projected pricing pattern. Weakness in the U.S. economy has led to softening gasoline demand. While gasoline prices have increased this winter due to surging crude oil prices, they have not risen as high as they would have if year-on-year gasoline demand growth was unfolding at normal rates.

On the other hand, demand for distillates in Europe, Asia, and the Middle East has continued to grow at a fast pace. In Europe, financial incentives continue to promote the transition from gasoline-powered to diesel-powered cars and light trucks, while a growing economy has lifted transportation sector consumption overall. Additionally, emissions standards for diesel fuel continue to tighten across Europe, adding to supply tightness as European refineries catch up to new specifications.


  1. I speculate:
    the elasticity of gasoline might well be higher than that of diesel in the US, given that most cars use gas, not diesel.

    When gas gets high, people cut back on use of their cars.

    When diesel gets higher, trains and trucks keep rolling, and pass the costs along to their customers … or businesses fail.

  2. There is, perhaps, another aspect to this issue. The refining capacity for both gasoline and diesel has remained relatively flat, though I understand that new capacity is to come online in the next couple of years. That, coupled with the seemingly enormous increase in the numbers of diesel-fueled passenger cars and trucks may explain the increased demand for diesel, relative to supply.

  3. LL –

    I just heard a piece on the Platts podcast that made this point, which I had not realized. Also, increased diesel imports to South America.

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