Why is the price of diesel fuel a $1 per gallon more expensive than regular gas?

Well, gas prices are certainly down significantly from where they were only a few short weeks ago, but I have been puzzled for a while why diesel prices continue to be fairly high.

Today Mrs. B took me to the doctor (thank you Mrs. B) and then we ran an errand for the Durham Symphony while we were in the area. While we were stopped at an intersection I noticed that regular, unleaded gasoline was $1.899 per gallon and diesel was at $2.899 per gallon - a $1 per gallon difference. Hmm, maybe since I'm feeling like such an invalid I could look into this today while I'm sitting around doing nothing.

So what I found out so far is that the price of oil makes up approximately 64% of the price as can be seen in the graphic above. Not surprising as this is what you would expect since diesel is refined from oil.

What I didn't know was that there are only a certain number of gallons of diesel that can be made from one barrel of oil. According to this government website a barrel produces a range of products as is shown in this graphic:


Other searches indicate that each barrel contains 42 gallons of crude oil and the standard refraction process produces approximately 19 gallons of gasoline and 10 gallons of diesel and heating oil combined. And, according to this article in the NY Times, that this proportion can be tweaked slightly using the current process to produce slightly more diesel, but not a significant amount.




It seems that while demand for gasoline has decreased and depressed the price of oil and refined refined gasoline demand for diesel has not decreased in the US as well as in Europe. From what I've read Europeans drive more diesel cars because of the fuel efficiency and overall consume more diesel than gasoline.

What seems to be happening is that the refineries in Europe are producing diesel for consumption in their markets and shipping the excess gasoline to the US. The US refineries, because overall demand for gasoline is down, have lowered their production of gasoline to keep from building a huge inventory of gasoline, hence lower production of diesel that is keeping the price of diesel higher than regular gasoline.

With gas a down to price levels not seen since 2002/2003, demand not likely to increase any time soon, and the importing of gasoline from Europe, the price of diesel fuel is likely to remain at or near this level. Seems to me that the biofuel industry in this country has a window of opportunity to create a market for itself that shouldn't be missed.

By the way, just in case you were wondering, according to the government article quoted earlier, the federal excise tax on one gallon of diesel is $0.24.4 cents and state taxes add an additional $0.20 cents per gallon on average.