May Diesel Fuel Price Trend

Fuel prices, whether for diesel fuel or gasoline, can fluctuate wildly throughout the course of a year. However, this tendency doesn’t keep government or industry experts from announcing trends based on present prices and past price behavior. The shorter the time span covered by a forecast, the more likely it is to be correct.

According to the U.S. Energy Information Administration (EIA), diesel fuel prices have dropped through the first three weeks of May, 2012, from a U.S. average of $4.057 per gallon on May 7 to $3.956 per gallon on May 21. This trend is a continuation of similar price drops during the previous month. These prices are higher than last May’s price of $3.84 per gallon, but prices are predicted to drop a few cents per gallon by next year at this time. EIA forecasts for the remainder of 2012 estimate that diesel fuel will average $4.06 per gallon.

Why do fuel prices vary so much from year to year, season to season, or even week to week? The answer lies in the price structure of a single gallon of diesel fuel, where four separate components combine to influence the final retail price.
• Cost of crude oil, which accounts for 63 percent of the cost
• Refinery costs and profits, which make up 14 percent
• Distribution and marketing costs and profits, which make up 11 percent
• Federal and state taxes, the final 12 percent

These figures were compiled in March, 2012, by the EIA. Together, the cost of crude oil and wholesale diesel margins (the difference between the cost of crude oil to the refinery and the wholesale price of diesel fuel) are the two components most responsible for price fluctuations at the pump. The cost of crude oil varies in response to political situations throughout the world, but particularly in the Middle East, and wholesale margins reflect that cost. As of May, 2012, those margins have averaged $0.60 per gallon.

Prices will always also reflect the unknown variable of market demand. Demand enters the picture with diesel fuel in several regards, which cause its price per gallon to be higher than that of gasoline. First, demand for diesel fuel is increasing globally, which in turn puts pressure on present refining capacity around the world. In the United States, cost per gallon has risen in response to the switch to ultra-low sulfur diesel (ULSD), which costs more to produce. Federal taxes are also higher for diesel fuel. At present, the federal excise tax on diesel fuel is $0.244 per gallon, compared to $0.184 per gallon for gasoline.

A final factor which may affect diesel fuel prices is the public’s response to pleas for more environmentally sound behavior. Diesel fuel leaves less of a carbon footprint than gasoline does, and if cars with clean-burning diesel engines grow in popularity, that increased demand may influence prices at the pump.

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