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Diesel Crosses $5.00/Gallon Mark in California

The price gap between diesel and gasoline has been expanding, most visibly in the California market. Click to enlarge.

The price of diesel jumped past the $5.00/gallon mark in California this week to $5.027—a 69% increase from one year ago, according to the latest data from the US Energy Information Administration. The average price for retail on-road diesel across the US was $4.731/gallon.

The average price for gasoline (all formulations) in California for the same period was $4.099/gallon. The average price of gasoline across the US as reported for this week was $3.937/gallon. The premium between diesel and average gasoline prices in California for the week is $0.928/gallon, or a 23% price premium for diesel on average. nationwide, the premium is $0.794/gallon price premium, or 20%.

The increasing—and persistent—gap between diesel and gasoline—which is beginning to eliminate the fuel consumption advantage of diesel over gasoline engines—could negatively affect the adoption of diesel powertrains, just as they are beginning to come back into the market.

In a presentation during a workshop discussing policy mechanisms for further reductions in vehicle greenhouse gas emissions at the California Air Resources Board (earlier post), Dr. Ken Kurani of the UC Davis Institute of Transportation Studies (ITS-Davis) noted that in the past, adoption of alternative fuel powertrains has dropped precipitously once the perceived price benefit of the switch decreases or disappears.

Click to enlarge.

He specifically noted the example of the adoption of diesels in California in the 1970s and 1980s, with a plot of diesel vehicle sales against the price of gasoline and diesel. With diesel priced lower than gasoline, sales rose; once diesel prices exceeded those of gasoline, sales dropped sharply. (See chart at right.)




Worldwide diesel demand is growing faster than refineries can keep up. It's only the past three weeks that we've gotten some decent supply builds in distillates. Large drop in crude supplies (almost 9 million barrels) last week, but the IEA cited offloading "delays". Crude is still dropping again, and heating oil/diesel is 20 cents off their highs close to $4/gal wholesale.

With any luck, diesel prices have peaked. Can't say the same for gasoline, though.


So just so i get this straight in my own mind,

1. We are in a stagnant economy (which is being kind!), therefore demand is not increasing and probably declining

2. Diesel is cheaper to produce than Gasoline

3. We make too much of the stuff, so the oil companies ship the extra to Europe, while shipping the excess gas made in Europe to the US.

4. Bio-diesel production continues to ramp up (albeit still a very small portion of the total)

5. Oil companies are making record profits

6. There is no price fixing by the oil companies

7. I vaguely remember Chevron saying that they were trying to move to an energy content costing model a couple of years ago, looks like everybody followed suit

Now I understand. Maybe the simple answer is the right answer, the Big oil does not want efficient small cars sold in the US and can affect this by increasing the cost of diesel preventing penetration of this alternative.

What they want is a global balance of supply (Gas and Diesel) and production, and to keep the status quo which is working very well for them, thank you very much.

The Oil Sheiks and Oil Commissars manpulating their nationalized Oil Companies are cutting their own throats.

There has been substitution going on in most petroleum and coal markets over the last 40 years. But finally there are valid substitutes for transportation becoming available.

It has taken 40 years but Mankind using his noggin, eventually finds an acceptable answer. Electric autos are becoming practical. And non Coal sources of electricity are also forging forward.

Conservation helps but the improvements from conservation don't keep up with the tighter supplies or manipulated prices. The fattest SUV achieves better mileage than the tiniest widely sold minicars of the early seventies.

The price runup is a) forcing a global down turn b) forcing the auto makers around the world to accellerate their non-oil technologies c) inducing auto buuyers to consider better mileage vehicles d) makingthe higher mileage alternatives more acceptable in the market.


It seems the Big Oils are doing very well to prevent the introduction of Diesel cars in the United States. The domestic auto makers thought they have an escape route through Diesels, but that has been cut off at the pass so to speak.

The Scoot

If we are to assume that diesel supplies are being manipulated by big oil through market manipulation if not outright oligarchic price fixing, we must also assume that non-petroleum sources of diesel will continue to be more and more competitive with petroleum derived diesel.

In short, revolutionary new materials, more efficient drive trains, and more earth-friendly energy carriers are being pushed onto the market because oil barons want to squeeze every last dollar out of a 150 year old economic model.

I couldn't be happier.

Cervus, I'm afraid we won't see a price peak until China and India stop subsidizing their gasoline. India won't lower subsidies at least until next year's election and China probably won't change anything as long as they can help it, which could be a long time since they are pretty cashed up. Yes, in this case some governments are making the situation a lot worse!



One estimate I read was that without fuel subsidies demand would be about 3 million barrels per day lower than it is. With prices this high, there are rumblings of decreased Asian demand and subsidies (already happening in Indonesia). This may or may not materialize in China or India, but it's enough to make oil go down over $4, though where it closes I have no idea. Traders have chosen to focus on demand instead of the supply drop. Commodities in general are dropping today, with the exception of chocolate.


As far as I am informed China (and India also I think) does not subsidize the price of gasoline or diesel. Instead they have price limits that must be obeyed. This means that Chinese refineries are unable to profit on imported oil so they halt production and this has created queues for gasoline and diesel all over China. If China lifts its price control it will lead to higher global crude oil prices because they will import more. The Chinese price controls are effectively preventing them from using as much gas as they what to.
The story is entirely different in Venezuela and most of the Middle East. They use price subsidies and finance it with profits from oil export. Chinese refineries do not have that option.


Give me a BREAK!!!! US subsidies and special favors and outright GIVEAWAYS to the fossil fuel industries amount to at least $250 Billion to $350 Billion----nobody even knows for sure how much it actually is. It is kept well hidden.

And that isn't even mentioning the $900 Billion requested for the military budget for a war to secure oil resources...............................or funding for our president to grovel and lick King Abdullahs boots to give us more oil, and offer him nuclear reactors to "assure the energy future" of a small country with fewer people than Florida that has more energy reserves than the rest of the world combined. "Assure the energy future" means provide Abdullah with the means to make nuclear weapons in Islamic Terrorist Central----over half of the terrorists who attacked the WTC and Pentagon were Saudis.


The skyrocketing price at the pump is frightening and something has to be done. Here is a suggestion.

The federal government should rethink the way that it encourages the non oil based fuel (NOF) marketplace. Instead of subsidizing Biofuel in the farm bill and tax incentives for domestic oil drilling, the procurement arm of the executive branch should request for bid various long term contracts to meet all federal fuel requirements including those of the defense department. This would eliminate any congressional involvement.

The specification of this fuel should be standardized and state that it not be manufactured from food crops. This would provide the following:

- Discipline in NOF engineering,
- A sure market for NOF,
- Encourage capitalization of NOF production,
- Lower the demand side pressure on the oil based marketplace,
- Increase the federal fuel budget only slightly.

The president should encourage and coordinate with state governments and various transportation companies such as airlines, trucking, and package delivery. A call to patriotism and tax incentives can be used to motivate corporations and revenue sharing for state governments.

I believe this would transfer speculative pricing pressure form oil base fuel to NOF. This could reduce the price at the pump for the ordinary guy and at the same time funnel money into NOF production.

This action would greatly reduce demand and the price of gas and especially diesel, together with standardizing NOF fuel and the engines that use it. In addition, this standard would provide a template for NOF use in the consumer sector of the economy.

If transportation energy is the top economic and security issue for our country today, it is unwise to leave it to random forces.


Henrik, China is reimbursing refineries for their losses so the price cap works the same as a subsidy. China's price controls have not caused a general halt in refinery operation -- Chinese oil demand is still growing 7%/year and imports are growing even faster. The shortages you hear of are temporary spot shortgages. China's rapid sustained growth regularly causes spot shortages of all kinds of goods.


Something is seriously wrong with our foreign energy policies.

Last week at a congressional hearing the Secretary of energy was asked why were nuclear reactors offered to King Abdullahs instead of solar farms? “…After all the place is a desert were it never rains….”

He said that he didn’t know!!!


Thank God they will be gone in a few months!

Farms & Oil are the most subsidized industries in USA. The huge hand-outs to farmers gave us very cheap food or decades and is used to crush competition on the foreign markets. Without food export, USA's trade deficit would be so high that it would take the dollar down.



I have no certain documentation of my own claim. The thing I remember is this quote from a previous GCC article. “The gap between the prices of global crude and domestic oil products is widening, leading to heavy losses for refiners. For quite a period of time, certain regions have faced a shortage of oil products or tight supply.” See http://www.greencarcongress.com/2007/11/china-raises-fu.html

If you say that subsidies are involved there may be something about it. However, I am not sure they make up for all of the price difference as indicated by the GCC article. If you have a reference to your information I would like to see it. We could both be right if the system is partial price control partial subsidy. How much?


There is also the fact that the earthquake in China caused coal mine collapses and production shutdown. They also have very short coal reserve, thus they're importing diesel fuel for generators to ensure adequate electric production and enough coal for steel.


i guess one problem is that its quite expensive to produce low sulfur diesel...


Diesel crosses $9.70/gallon mark in Aberystwyth, UK (local price 130p per liter).


"something has to be done."

Set an inflation-adjusted price floor starting at $5/gal.



Henrik, here are a couple of links to articles talking about the situation in China. The refineries are being reimbursed but there appear to be some problems.



'Squawk Box' Guest Warns of $12-15-a-Gallon Gas

MONEY – Robert Hirsch, an energy advisor, says CNBC morning show prediction was a citation of the 'Dean of Oil Analysts.

Hirsch told the Business & Media Institute the $12-$15 a gallon wasn’t his prediction, but that he was citing Charles T. Maxwell, described as the “Dean of Oil Analysts” and the senior energy analyst at Weeden & Co. Still, Hirsch admitted the high price was inevitable in his view.

Check it out at the following link



Sorry, Let me try this again.

Rationing will result from $15/gallon gas



Markus thank you for the links they were really helpful

The ChinaDaily article shows that oil subsidies are involved but that they are insubstantial. They were almost absent in 2006 and 2007 or less than 1% of the Chinese import bill for oil. 1st quarter 2008 they have been raised a lot to about $1 billion USD. China imported 3.5-4 million barrels per day at an average price of $110 for that quarter. That is 3.5*110*90 (days) = $34.6 billion. So now the subsidy is about 3% of the import bill.

My previous conclusion still stands that if China lifted its price controls it would increase global oil demand and thereby global oil prices. The existing subsidies are simply insubstantial.

As a >very rough< rule of thumb oil exporting countries favors subsidies for social reasons and because they have an obvious party to pay the bill and oil importing countries favors taxes or price controls because it helps reduce oil consumption. A notable exception is Norway that exports more oil and gas per capita than any other country in the world and taxes prices so that they currently sell for $10 a gallon for gas and $11 for diesel. My own country is just a little behind. Believe me people are still driving as they did when it was $5 a gallon the only change that I notice is that people who are buying new cars go for the ones with high mpg. This has changed quite a lot. For Detroit to become profitable they need to get out of the SUV and truck business because there will be no demand for that at $10 gallon and a large used car market with affordable SUVs.


PS I should mention that the SUV and truck business could be reinvented with plug-in drive trains that can do 100 mpg. I am certain this will happen because people want bigger cars just make them more affordable and green to drive.


Yes, it really bites that diesel is $5 per gallon but the part of it that some people will never realize is home heating oil is also 4.50+ per gallon. That is a killer. You can go out and buy a hybrid and drop your transportation cost but what do older people do with fixed incomes to heat their homes? I hear people saying they are going to have to get a part time job to pay for oil.
Alt fuels, there is a company that is producing biofuel by feeding algae sugar. I know one major oil company has invested into it but lets take the subsidies away from the oil drilling and dump it against these type. By watching their article, production volumes have a lot of potential.


High diesel prices cost us dearly in transportation cost, especially food. That, combined with using food crops to make ethanol and, farmers electing to plant corn instead of wheat, barley, etc., will, according to some estimates, raise food cost in the US this year by 9%.
Because of the demand for alternate fuel feedstock, rainforests are being depleted at an alarming rate, and, since we can't drill or build refineries in the US we are at the mercy of OPEC (especially the nut cases) for our fossel fuel.
All things considered, we have traded the devil we know for a devil we don't know.

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