So You Think Gas Costs a Lot?
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By MATTHEW L. WALD
Published: May 18, 2008
INCREASING its longstanding appeal to mileage-conscious drivers, diesel fuel has for years cost less than gasoline, and even as recently as last summer the two were no worse than equal in price. Since then, a gallon of diesel has become more expensive than unleaded regular — now 16 percent more and poised to go higher still.
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Pulling Away: Diesel Prices Outstrip Regular
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Times Topics: Diesel Vehicles
Both fuels are up steeply this year because of the cost of crude oil, which has doubled in the last year and is now around $3 a gallon. But why is the price of diesel, distilled from the same raw ingredient, growing faster?
It’s because higher prices affect demand for each oil product differently, and diesel is “the one product the world really wants,” said Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, a nonprofit group financed by oil producers, refiners and marketers, with some government help.
The price spread has attracted the attention of Congress. This month, John Felmy, chief economist of the American Petroleum Institute, an industry trade association, testified before the highway subcommittee of the House Transportation Committee. “U.S. overall petroleum demand, including demand for gasoline, has flattened,” he said. “However, in the U.S., demand for diesel has remained strong.”
He added: “This follows a long-term trend here and around the world. Over the past five years, U.S. demand for highway diesel has been rising at triple the rate of gasoline.”
Part of the American demand for transportation fuel is met by refineries in Europe, a link that usually helps keep prices down. But demand for diesel is rising in Europe as passenger car ownership and use there grow; many of those newly purchased vehicles are diesel-powered, a choice that had been encouraged by tax policy there.
As a result, production at European refineries is geared toward processing crude oil to meet the demand for diesel. That produces surplus gasoline, which the refineries export to the East Coast of the United States, experts said. That does nothing for diesel supply here.
A related problem is that while American demand for gasoline and demand for diesel are fluctuating separately, the supply is linked.
Each 42-gallon barrel of crude oil yields about 19 gallons of gasoline, according to the Energy Department, and about 10 gallons of diesel fuel and heating oil combined. (The two are chemically similar.) Refineries can crack the big hydrocarbon molecules found in the heavier part of the crude oil feedstock into diesel, gasoline or other products, and thus have some flexibility, but there are limits to how much the ratios can be adjusted.
“There is some ability to do that, but it’s not by huge percentages,” said Ronald J. Planting, the manager of information and analysis at the American Petroleum Institute.
Diesel production was actually up for the first few months of this year compared with the period a year earlier, Mr. Planting said. But the outlook is cloudy. With gasoline prices high, demand has fallen; for March, April and the beginning of May of this year, inventories were running nearly 10 percent higher than a year earlier, according to the Energy Department.
Mr. Goldstein’s interpretation is that refineries have thus decided to process slightly less crude oil than they would otherwise have used, which would result in less production of diesel as well. It is as if sirloin had become so expensive that demand dropped, so farmers raised fewer cows, reducing the supply of hamburger — but hamburger remained as popular as ever.
Mr. Goldstein said that the increased production of ethanol was also pushing up diesel prices by offsetting some of the need for gasoline, because as refiners make less gasoline they produce less diesel as well. “Refiners, for more than 50 years, have been configured to make gasoline,” he said. “Their hardware is geared to make gasoline; that’s what they know how to do.”
He pointed out that several refineries had lost money in the last quarter and thus were cutting back operations, further restricting diesel supply, although gasoline inventories are ample.
Refining teperatures have little to do with increasing the cost of diesel as opposed to gasoline. A pittance of tax, and supply and demand - fake!
Ambergris Caye 
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