Why diesel is so expensive

Let’s take some time off from philosophizing about the future of extended range and electric vehicles and look at what may be electric and hybrid vehicle technology’s greatest competitor: Diesel.

If you’ve been driving for ten years or more, you may remember when diesel was significantly cheaper than gasoline. However, about four years ago diesel moved up to and then passed gasoline in price. In California it’s running about $5.15/gal, compared to $4.24/gal for regular gas.

The Wall Street Journal says the rise in diesel is due to several contributing factors, but the main one is global demand.

“Growing demand in China, Europe, and the U.S. is putting pressure on already strained global refining capacity. The move in the U.S. to ultra-low sulfur diesel during the last two years has also led to increases in the cost of diesel production and distribution. The federal excise tax on diesel fuel is also six cents higher per gallon (24.4 cents per gallon) than the tax on gasoline. Global demand for other distillate fuels, such as No. 2 heating oil, has also been rising steadily.”

Another article in the WSJ about refinery output [Corrected] says,

            “As diesel’s price increase has outstripped that of gasoline, U.S. refiners have been easing the throttle on gasoline production, cutting refinery operating rates to 86.6% from 89.5% a year ago, according to the latest weekly government estimates.

Recently, weekly gasoline output dropped an average 2.2% from the same period last year, and it is below 2006 and 2005 levels. Meanwhile, weekly distillate production, which is mostly diesel, grew an average 3.2% from last year and surpassed levels from the previous two years.”

UPDATE: I had the wrong url for the second WSJ article (thanks, W17053, and sorry for the delay.) The article is behind a reg wall now, so let me summarize: The lousy US economy is causing US consumers to cut back on all fuel consumption, but the developing world, where diesel is often more popular than gasoline, is seeing increasing demand for diesel. The higher international demand is causing diesel prices to soar. Except, as adam mickievitch points out below, in Mexico. But that’s for another post.