That's a question that we've heard recently on a fairly regular basis: gasoline prices are falling, but what about diesel?
In order to answer this question, it's essential to understand about how diesel and gasoline are priced.While gasoline and diesel fuels are both derived from crude oil, they are separate commodities and priced independently in the North American markets. So they each have their own supply and demand fundamentals and these often move in different directions.
Gasoline is primarily a retail product and prices tend to jump towards summer as more drivers hit the road or go on long cross-Canada road trips.
In North America, diesel is more of a commercial product. We use it for road transport, industry, agriculture and heating. Prices tend to rise in the winter when demand is strongest - this is the time of year, particularly in Canada, where we use a lot of heating fuel and we transport more goods from farther away.
OK, that's the demand side of supply and demand. What about the supply side; how is it affecting diesel prices? Since the North American consumer market is a gasoline-dominant market, refineries are optimized for gasoline production. For example, a barrel of crude will produce 18 to 21 gallons of gasoline but only 10 to 12 gallons of diesel fuel; there is simply less product in a market that wants more diesel.
So while retail diesel prices have, in fact, fallen in recent months as the price of crude oil has declined, the price reductions are less than for gasoline largely because of the seasonal increase in diesel demand with production remaining consistent.
We've written a couple of other pieces on PumpTalk about diesel prices: "Global Demand and Diesel Prices" and "Diesel Prices". Also, this article in the Vancouver Sun has some additional information about falling diesel prices compared to falling gasoline prices.
Hope this clears up some of the questions you have about diesel prices these days. Do you drive a diesel vehicle?
- Rose R.