Why Is Diesel More Expensive Than Regular Gas?

Diesel fuel often costs more than regular gasoline. This price disparity stems from complex factors across the fuel supply chain, including refining processes, market demands, taxation and regulations, and broader global economic forces.

The Production Process

Refining crude oil into usable fuels is a sophisticated process. Diesel fuel requires more intensive steps than gasoline. Crude oil is separated into various petroleum products, or “cuts,” through fractional distillation. Diesel is a middle distillate, and its production involves specialized and costly treatments.

The stringent requirement for Ultra-Low Sulfur Diesel (ULSD) is a primary driver of its refining cost. Regulations mandate sulfur content be 15 parts per million (ppm) or less. Achieving this requires hydrotreating, where diesel reacts with hydrogen and catalysts to remove sulfur and other impurities. Hydrotreating is energy-intensive, requiring substantial capital investment in specialized equipment, high-purity hydrogen, and continuous operational expenses. These advanced refining capabilities add a measurable cost per gallon to ULSD not typically incurred for gasoline production.

Market Demand and Sector Usage

The primary consumers of diesel fuel differ significantly from gasoline users, leading to distinct market dynamics. Diesel demand is largely driven by commercial and industrial sectors, including heavy-duty trucking, shipping, agriculture, construction, and rail transportation. For these industries, diesel is an indispensable fuel, making their demand relatively inelastic; consumption does not significantly decrease even when prices rise.

Diesel-fueled trucks constitute a large percentage of commercial trucks in the United States, underscoring the transportation sector’s reliance. This concentrated and essential demand allows for higher pricing compared to the more elastic demand from individual consumers for gasoline, who may reduce driving or seek alternatives when prices increase. Diesel is chemically similar to heating oil. Seasonal demand for heating oil in colder months, particularly in the Northeast, can draw down overall distillate fuel inventories. This increased seasonal demand places additional upward pressure on diesel prices, as refiners must balance supply for both transportation and heating needs.

Taxation and Regulatory Requirements

Taxes and regulatory compliance costs contribute to the price difference between diesel and gasoline. At the federal level, excise taxes on diesel are notably higher than on gasoline. As of July 1, 2024, the federal excise tax on gasoline is 18.4 cents per gallon, while for diesel fuel, it is 24.4 cents per gallon. This 6-cent difference adds a significant amount to the cost of diesel.

These higher diesel taxes are earmarked for the Highway Trust Fund, intended to maintain and improve roads and infrastructure, reflecting the greater wear and tear caused by heavier diesel-powered commercial vehicles. Beyond federal taxes, states also levy their own excise taxes, which are on average higher for diesel than for gasoline. In addition to direct taxes, regulatory compliance costs, such as meeting strict emissions standards for diesel engines, can indirectly add to the final price. Manufacturers and operators incur costs for advanced exhaust treatment systems and specialized testing, which are passed along through the supply chain.

Supply Chain and Global Factors

The journey of diesel fuel from refinery to pump involves supply chain complexities and broader global market influences that impact its price. Transporting and storing diesel, especially the large commercial volumes required by industrial users, can be more intricate and costly than gasoline. Specialized infrastructure, including pipelines, barges, and storage tanks, is necessary to handle and distribute diesel efficiently, adding to logistical expenses.

Global crude oil prices are a fundamental determinant of both gasoline and diesel prices, as both are refined from crude oil. International demand for diesel, particularly from regions like Europe and Asia where diesel passenger vehicles are more common, can exert additional upward pressure on global diesel prices, which in turn affects domestic pricing. Geopolitical events, such as conflicts in oil-producing regions or disruptions to major trade routes, can also significantly impact the global supply and price of crude oil and, consequently, refined products like diesel. These macro-level factors, combined with domestic supply and demand dynamics, contribute to the volatility and often higher cost of diesel fuel at the pump.