Disparity Between Retail Gasoline and Diesel Fuel Prices (CRS Report for Congress)
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| Release Date |
March 31, 2008 |
| Report Number |
RL34431 |
| Report Type |
Report |
| Authors |
Robert L. Bamberger and Robert Pirog, Resources, Science, and Industry Division |
| Source Agency |
Congressional Research Service |
Summary:
Over time, gasoline has typically been more expensive than diesel fuel. However, their relative prices have now reversed. In mid-March of 2008, gasoline prices exceeded $3.39/gallon (gal) while diesel fuel prices were above $3.97/gal, a differential of almost $0.60/gal. This has prompted questions of why the historic gap between gasoline and on-highway diesel prices has widened so greatly and over such a relatively brief period of time.
Crude oil, when refined, produces a mix of products. Diesel fuel and home heating oil are derived from the portion of the barrel that produces what are termed "middle distillates." Another part of the barrel furnishes the feedstock for gasoline. Refiners process barrels of crude oil of differing quality, depending on the relative prices for oil of different qualities, and their available technology. Within technology-defined limits refiners can vary the proportions of middle distillate and gasoline production. Because the entire range of petroleum products derive from the same barrel, it is difficult to attribute general refining costs to any single product, making it also difficult to ascertain the relative cost proportions. The exception to this would be when the investment costs of changing product specifications to meet seasonal or environmental requirements can be measured.
A number of specific factors may be identified that have contributed to the shifting relative prices of gasoline and diesel fuel. It is important to recognize that the U.S. market for these fuels is part of a broader world market. World demand patterns are shifting as diesel fuel becomes a primary consumer transportation fuel in Europe and other parts of the world. World price differentials are transmitted to the U.S. market.
Other factors affecting diesel prices include refinery investment costs, as well as investment costs in the product distribution system to accommodate new specifications for diesel fuel that require lower allowable sulfur content; the seasonality of home heating oil demand, a similar product, which transmits the price effects of cold weather from the heating market to the on-highway diesel fuel market; world market effects that might affect the pricing and output mix decisions of refiners; and circumstances affecting the local market at point of purchase.
One other factor should be noted. The primary demand sectors for gasoline and diesel fuel are different in the United States. Gasoline is a mass consumer good and home heating oil an important regional and seasonal residential product, while diesel fuel is used in a wide variety of commercial and industrial applications. Diesel fuel is often part of the cost of delivering goods and providing services. As a consequence, demand for diesel fuel may be less elastic, and therefore, likelier to be passed on to consumers.
