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Price of Diesel Fuel

Discussion in 'Diesel' started by captharley, Feb 24, 2011.

    captharley guest

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    Isn't it interesting? I'm watching Diesel Fuel increase 5-10 cents a day. In Central PA, highest price seen as of today 3.75/gal. Averages 20-40 cents more than 93 Octane gas. And we are referred to as "green?" Some of us received $1800 tax credit for buying the diesel. Did the Gov't know that we would be giving it right back in the first 6 months after Income taxes were submitted to the IRS? I smell conspiracy??!! Who do we thank for the opportunity to spend $100 per tank? Middle East folks? Our Canadian brothers? Our politicians? Our Department of Energy? When do WE arise on our hind legs and say, "we ain't goin' to take it anymore!";)
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    MGarrison

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    There seems to be no obvious, common-sense logic behind diesel fuel prices being higher than regular gas. Afaik, diesel is less refined than regular gas, and therefore less expensive to produce, which (I think) was historically why diesel was always less expensive. After diesel went higher than regular gas a few years ago, it's never come back down to anywhere near where it was (noticeably cheaper than regular gas). Unless a dieself fuel tax has been implemented (never heard about it, but I suppose possible) the law of supply and demand would imply that there's either been a supply constraint, or increase in demand with no increase in supply. Seems puzzling on the face of it, without further insight.
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    Scott

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    According to Wikipedia (and Wikipedia is NEVER wrong :eek:), federal tax on gasoline is 18.4 cents per gallon and federal tax on diesel is 24.4 cents per gallon. So diesel starts out 6 cents per gallon more expensive. In my state, gasoline and diesel are the same (17.3 cents per gallon), so why diesel runs any more than 6 cents higher than gasoline is a mystery to me. The people I really feel sorry for are the ones today who paid $3.63 per gallon for diesel on the main drag (Phillips 66) instead of driving a mile and a half down the frontage road and getting it for $3.39 (Shell). :confused:

    Meanwhile, premium gasoline was priced around $3.52, so within a few miles, diesel is either 11 cents higher, or 13 cents lower than premium gas. Yep, I'm still confused.
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    Deutsch Marques

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    My first car was an '84 Jetta Diesel I bought off my parents in '89. I paid something like $0.48/gal and went 2 weeks between fill-ups! Oh if I could only go back to those days.

    If I understand correctly, Diesel is very similar to heating oil, jet fuel and kerosene in how it's refined from crude oil. And seeing how the prices are driven up from those other markets, diesel car drivers suffer the price increases as well.

    Of course, it all boils down to the oil companies gouging us for as much as they possibly can. How else could they have still made BILLIONS in profit during the worst recession in decades and with oil prices so high!?

    Bring on the electric cars!

    captharley guest

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    You can clump diesel with kerosene and heating oil, but jet fuel? But that is besides the point; Our diesel fuel prices, along with everything that is becoming more expensive by the day, is governed by the Free Enterprise system. This is not a political statement, but isn't that the mainstay of the GOP? Cut taxes, cut gov't benefits and programs, remove unions, etc and allow the marketplace to seek its own goals without gov't intervention. This will grow the country and jobs and prosperity for....whom? Forget us who bought diesel vehicles, Think of all the products trucked to every city and hamlet in the US. Higher fuel costs, higher the products cost. It would seem to me that as expenses go up, profits go down and business and jobs dwindle. Where are the politicians who claimed to want to make a difference for the American people? We need gov't intervention now.
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    Pyewacket1

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    Oh, I think we ARE seeing a difference...The question is... Who is getting the benefit?

    As for fuel prices, if I remember correctly, Europe uses more diesel than it refines, and the US uses more gasoline than it refines...Ergo, we import Europe's excess gas, and trade them diesel in return (as an export to them).

    In the end, Europe has been far more "farsighted" than the US, in building transportation infrastructure (and, yes, I understand it was financed by high taxes on fuels). The point is, higher prices are here to stay (with some minor fluxuations here and there), yet we have little alternative to driving.

    There are reasons for this, and we should all take the time to understand why things are the way they are...

    maxlfoster guest

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    In theory, if you believe that markets are efficient, then this should take care of itself over time...if drivers/consumers know what a gallon of gas goes for in the area, and given the other qualifiers (that are true) for perfect competition. Your higher-priced gas station would be forced to lower its prices to compete with other stations in the area, because consumers would just pass by the higher-priced gas . The only problem with this is that consumers don't have perfect information (know the price of whatever octane they use at every gas station within any given radius). So, they don't realize they are getting gouged until they drive down the street and see your lower-priced station.

    Wikipedia may not be perfect, but this is a good article:

    http://en.wikipedia.org/wiki/Perfect_competition

    Gas stations are the perfect model for this type of competition (again, in theory).


    As for diesel/gasoline relative prices--there is some seasonality involved in this spread, and it will be particularly wide depending on where you live. In the Northeast, where most homes/business use Heating Oil (nearly an identical product to Diesel), you will find in the winter that it will be more expensive than gasoline, because most of the Distillate (product group that both diesel and heating oil belong to) fuel brought in on barges, and shipped up on pipelines, will be heating oil, to satisfy that need to heat homes and businesses. Refineries also tweak their processes depending on the season.

    During the summer, when the "driving season" is in effect and you generally see an increase in gasoline prices, diesel will also rise--but not to the same extent, because refineries have again adjusted to produce more diesel and less heating oil.

    I would argue that it is not the oil majors who are at fault for this--the system that gets these products into your gas/diesel tanks is not perfect, and in fact the big banks/trading shops are the ones that contributed to the ridiculous oil spike in 2008. The total cash invested in commodities (such as oil) in the last decade multiplied by an enormous factor--I don't have the figures in front of me but it jumped from something like $3 billion in 2000 to $100's of billions now. The oil majors are in fact naturally short in the financial markets, to hedge their exposure as they pull oil out of the ground. While they don't mind seeing the price of oil go up, they also don't gamble on the price of oil like hedge funds and banks did. They have interest in stability.

    I'm assuming I'll get jumped on for these comments...but there is a lot of factual evidence to support it.

    captharley guest

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    Thus, we have one theory that the explanation is Supply Side Economics and the Europeans have the supply abundance that we gave them because we need more gas than diesel. Seriously? Tractor trailers, construction equipment, et using diesel engines have been around a long time and used by companies that have the ability to lobby that kind of diesel giveaway since it cuts into their bottom line. So I cannot accept that. A second theory of the increase in the Winter as diesel competes with home heating oil was one that I thought was correct. However, I have read reports that that is not true - I heat my home with oil and I paid 3.64/gal when my tank was filled at the end of January when diesel fuel was 3.15/gal. And at the end of the day, we can all think of reasons why diesel is up and believe that we are correct; except when we see the prices go up, literally, daily. I don't think there is any economic theory that propels prices within a system to rise on a daily even a weekly basis. Or is this just another cyclical event every couple of years to boost profits in certain arenas and when it's felt that sufficient margins are met, the strangle hold is loosened for another couple of years.:confused: Or it just might be my fault owning two BMW's, one Ford truck, one Harley and one Kawasaki;) ;)

    maxlfoster guest

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    No, not your fault at all. You just have to pay a little extra now to gas up the toys you bought :).

    Again, as you alluded to, economics works great in theory. Not in practice. I would say that I don't agree with your comment about "releasing the stranglehold" on us lowly citizens. Companies are doing this to make money (and they don't want a break from that), and OPEC, as much as we hate that they have so much clout, does show mercy from time to time, as this morning the Saudis pledged to increase production by 1.5 million bbl/day--should ease the run-up of oil as a result of turmoil in Libya etc.

    If you think that Uncle Sam has something to do with this, well then...I'd ask you to prove it. Yes the government and the oil & gas industry have close ties, but as much as you hate it, energy is a matter of national security. I'll pay an extra few hundred $$$ a year in gas to line their pockets if it means OPEC doesn't have complete control and I can drive my dream car around as I please.
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    MGarrison

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    Isn't another issue relative to fuel prices that oil is priced in U.S. dollars? With the value of the dollar being decreased by inflation and/or the Fed's quantitative easing, it's going to take more dollars to buy the same barrel of oil, which ultimately pushes pump prices up.

    Unless the diesel tax was imposed lately, I don't think I'm seeing here an explanation why, a few years ago, diesel prices jumped, and stayed up. I know memory is hardly a reliable indicator, but if we go back 5 or 10 years, weren't diesel prices _substantially_ less than gas, typically? I didn't follow diesel prices closely in the past, not having anything that required diesel, but I recall thinking that I always used to see it priced less than whatever I was paying for gas.

    captharley guest

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    Unless an individual is part of the "problem," an oil company exec,a lobbyist at the Federal and State level. or an exec in the Department of Energy, proving one's point is a Don Quixote effort. My comment using the word "stranglehold" seems to me to be historically correct.
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    Pyewacket1

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    As I stated in my earlier post, the pricing of energy is a complex process, yet there will always be those who wish to view it from a simple, black & white viewpoint. And, simply blaming the government (an intangible entity) is always popular with the "masses".

    Actually, the Saudi's have a vested interest in keeping energy (oil) affordable, in that if the price rises to high, alternatives become more attractive. Once the conversion has taken place to an alternative form of energy, it would most likely never return (at least, in its current form) once the price of oil dropped.

    As an example, imagine oil hits $200/barrel, and the US converts to nuclear power in a big way. Later, oil drops to $75/barrel. No one is going to suggest the "plug" be pulled on the nuke plants.

    That's just part of the "economic" equation...

    captharley guest

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    If oil hit $200/barrel, our "intangible" gov't could not act quick enough to push nuclear energy conversions and avert disastrous consequences. Furthermore, I agree with you that energy is a part of our National Security; I thought that was one of the reasons our gov't created the Department of Energy to deal with the complex issues?
    The "masses" need "black and white" answers to all issues regardless of complexities. For example, what's the answer to why diesel fuel and gasoline prices rise on a daily basis? I don't have the answer, but that is what our Gov't should try to explain in a clear and concise manner. Finally,I heard on the TV network news yesterday that the parents of Prince William's wife to be were self-made millionaires. So what I said to myself. And then the broadcaster said that the parents were a very "normal" middle class family. Is that what has become the tale of the tape to be referred to as Middle Class? :eek: I am too old to start all over again and regardless of whose explanation for this simple issue of fuel price increases, the masses are in trouble.
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    Pyewacket1

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    I mean no offense, but you appear far more bitter and upset with the actual price increases in fuel and far less interested in understanding why those "said" prices are increasing.

    You want a simple answer to a complex problem.

    "Why did the airliner crash?...Why, because it fell out of the sky.."

    A simple answer to a complex problem usually gives little, if any, information the the actual causes of the problem.

    captharley guest

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    No offense taken. The reality is that I cannot accept the answer that the rise in the price of fuel is a complex issue. As if to say, it's too complex to explain to just anybody. . Your perception that I am bitter and upset when I would like to know why I see the price of fuel go up on a daily basis is hilarious. Unfortunately, I know that is probably a question lacking a simple answer.. At any rate, thanks for the discussion..
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    tek4tex

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    Government regulation

    This is a very interesting discussion where very few basic facts are examined. The refineries in the US are geared to produce gasoline the process they use spits out 55% gas to 45% diesel for every gallon of oil that is refined. In Europe the reverse is true with diesel is the higher percentage fuel produced. Now we get to the real problem government involvement. Tax breaks in most of Europe encourages the use diesel over gas. This is not true in England where diesel has the highest taxes anywhere. The big jump in diesel fuel prices came with the new EPA requirements for low sulfur content to match what Europe has had for years. EPA fixation with unrealistic NO2 standards has reduced the growth of diesel technology in the US. Just check the requirements a manufacture must meet to have a new engine imported. The "green movement" has killed any chance for more refining capacity. The same thing happened in the power generation industry where no growth choked by government regulations sent prices through the roof. Now we have stopped all oil exploration while we make farmers rich to burn food that ruins engines. Until we have a take charge government that will stop over regulating prices will continue to climb fueled by every Mideast crisis.

    maxlfoster guest

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    I agree. Also, the Saudis would lose much of their world-wide influence if they aren't sitting on billions of barrels of the most important resource in the world--and if oil loses center-stage to a new source of renewable energy, they would by many standards become non-factors diplomatically. An astronomical percentage of their workforce is involved in some way or another in oil and gas; they need to continue to produce high volumes to supply the US' and others' thirst for oil at a reasonable price to sustain their economy. There is some evidence that they have drastically over-stated their reserves and are having a harder time getting oil out of the ground than they have admitted, due to geological factors they deal with in a number of their fields, particularly Ghawar.

    To captharley, and I should also say that I mean no offense in any of this--yes I do believe the DOE was created, in part, to make sure that we have the resources we need to survive shortages, fight wars, etc--they manage the Strategic Petroleum Reserve and Northeast Home Heating Oil Reserve, and they authorized the Trans-Alaska Pipeline. They also oversee a number of tasks surrounding nuclear power plants, nuclear waste disposal, and other power-related issues.

    I would argue the DOE has less of a role in managing foreign affairs than you might think--cabinet members in the past (and presidents) have made visits to many Middle East countries, as well as Russia, with top oil executives in tow. President Truman authorized a coup of Iran in 1953 that placed a favorable Shah into power, and also negotiated a deal between Aramco (then an American oil company, but now Saudi Aramco) and the Saudis to secure the US as a favorable ally and a beneficiary of their plentiful resources. Also--I just looked this up so I cannot take credit for it--the DOE was founded in 1977 (after the first oil shortage, so possibly in reaction to that? along with the solidification of nuclear power) after many of these partnerships with oil-producing countries were made.

    I would argue to that point that we are both right, depending on your horizon for involvement--sorry for being long-winded about all of this.
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    lkchris

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    Sure there is--diesel fuel contains more BTU of power for same volume.

    Buy more capability = pay more.

    Cost of production is irrelevant.
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    MGarrison

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    It may be true that diesel has more btu/unit, but saying more capability = pay more makes no sense in the case of diesel fuel. Typically, yes, one would expect to pay more if one product "does" more than another, but until recent years, diesel prices have always been substantially less than regular gasoline. One reason why is it was less expensive to refine; cost of production is entirely relevant.

    When I wrote that, I didn't think of the point tek4tex brings up, which is one of the main reasons for the price increase, the federal requirement for low-sulfur diesel to be used. The low-sulfur diesel is more expensive to refine & produce.

    Cost of production is always relevant, unless there is no cost of production (air... water... sunlight...).

    I'm giving away invisible cans of air free, if you would like some; freshly canned air, however, will be priced to cover the cost of raw materials plus production and overhead, but I will be happy to sell those, too. :D

    Perhaps I could interest you in a pet rock?? :p ;)
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    lkchris

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    It's only relevant to the manufacturer, who will charge what it wants.

    There is no reason for expectation from ultimate consumer that retail price is tied to cost of production. And thank your lucky stars there's no government requirement otherwise.

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