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Diesel Prices Catch Up to Regular Gasoline

For the first time in nearly six years, the average price of diesel fuel has fallen below regular, due to a variety of seasonal and market factors.
July 24, 2015

​WASHINGTON – The U.S. Energy Information Agency (EIA) reported this week that as of July 13, the U.S. average diesel fuel retail price fell below the average regular gasoline retail price, for the first time since August 2009.

Over the past six years, retail diesel fuel sold at an average of 34 cents per gallon more than regular grade gasoline, with the difference reaching more than 90 cents/gal in January 2015. According to EIA, the persistent price premium for diesel compared with gasoline in recent years reflected a combination of factors, including strong global demand for diesel, federal fuel taxes for diesel that are 6 cents/gal higher than those for gasoline, and the higher production cost of ultra-low sulfur diesel (ULSD) that was phased in between 2006 and 2010.

Gasoline and diesel have opposite seasonal demand patterns: gasoline demand tends to peak in the summer driving months, while diesel demand generally peaks in the winter heating months. EIA writes that since January, gasoline demand growth has been unusually strong both in the United States and abroad. Furthermore, although retail gasoline prices in most parts of the country have lowered along with crude prices in recent weeks, elevated retail gasoline prices in California, as a result of ongoing supply disruptions, have raised the U.S. weekly average gasoline retail price.

Tight diesel markets over the past six years have reflected growing diesel demand from developing economies and the switchover to ultra-low sulfur diesel (ULSD) for home heating oil in northeastern states, where more than 80% of  home heating oil is consumed. Over the same period, gasoline demand has generally been weak, reflecting increasing vehicle fuel economy and changing consumer driving patterns.

Price parity between gasoline and diesel is likely to be a relatively short-term phenomenon, as gasoline demand moderates with the end of the summer driving season and diesel demand begins to grow in response to the fall agricultural harvest and the winter heating season. In its July Short-Term Energy Outlook, EIA projected that the diesel price premium will return and gradually widen later this year, with gasoline retail prices averaging $2.27/gal in December 2015, compared with diesel fuel prices at $2.87/gal.

For more background on the market for diesel fuel, read the Fuels Institute report, “Consumers and Diesel: Potential Conflict Between Fuel Economy and Cost” (PDF), and keep an eye out for the Fuels Institute column in the upcoming August issue of NACS Magazine for a closer look at what’s happening in the diesel market.