Diesel Fails to Reflect Gasoline’s 40% Drop, But Lower Prices Expected in 2015

By Jonathan Spira on 12 December 2014
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IMG_9696While the price of gasoline at the pump has dropped roughly 40% since June of this year, the price of diesel fuel is seemingly unchanged.

The average price for a gallon of gasoline across the nation was $2.68 as of Monday and prices have continued to slide through the week, while the average price for a gallon of diesel fuel remains stubbornly higher at $3.53.

The average price for gasoline dropped by roughly ten cents from the preceding week, it is down 59 cents over the past year, while diesel only fell by seven cents week over week and only dropped 34 cents in the past year.

As recently as June of this year, headlines such as “Gasoline Prices Continue to Rise” were common, but not anymore. Since late June, when world oil prices began their free fall, the price of a gallon of gasoline hit a four-year low and continues downward. On Monday, the price of a barrel of crude oil hit a five-year low of $60 as prices continued to collapse. Still, as gasoline prices race in some parts of the country to $2 per gallon, diesel remains stubbornly at a significant premium around the $3.50 mark.

There are several reasons for the disparity in pricing including seasonal shifts in demand and refinery activity as well as changes to air pollution regulations.

Just as gasoline prices tend to rise in the summer, in large part due to changes in formulation for temperatures 90° F (32° C) and higher, diesel prices typically go up in the wintertime as the demand for diesel fuel for use as home heating oil rises.

In addition, federal requirements for cleaner burning diesel fuel have made diesel more expensive to produce.

Furthermore, the size of the market – the market for diesel is less than half the size of that for gasoline in the United States – means that it is slower to respond to shifts in the price of crude oil, regardless of how dramatic they may be.

Diesel’s increasing popularity as a motor vehicle fuel has also worked to its detriment as refineries have been designed with the production of gasoline in mind rather than diesel. According to figures from the U.S. Energy Information Administration, gasoline sales are off 1.5% since 2010 while, over the same time span, the sale of diesel fuel has jumped by 6%.

Still, there is some good news. The U.S. Department of Energy is forecasting far less expensive diesel prices for 2015. The agency projects that the average on-highway price for a gallon of diesel will average $3.07 next year, compared to this year’s average of $3.82 and 2013’s average of $3.92.

(Photo: Accura Media Group)