The increase in the base price levels of both gasoline and diesel fuel has been primarily driven by the worldwide increase in crude oil prices. Crude oil is the basic ingredient from where different forms of fuels are derived from.
It has relatively low sulfur content, which is an important characteristic tested for diesel fuels. In 2006, the new Environmental Protection Agency (EPA) standards for diesel fuel sulfur content were implemented. Ultra-Low Sulfur Diesel (ULSD) fuel which has a sulfur content of less than 15 parts per million (ppm) had to be sold in the United States, which in turn replaced most of the Low Sulfur Diesel (LSD) fuel.
First, there has been an increasing demand all over the world for diesel because of the increase in number of diesel-powered engines. In years when gasoline prices soared over diesel prices, car manufacturers produced cheaper diesel-powered vehicles in order to capture the market of consumers who wanted to save on gasoline prices. However, the fact that these diesel-powered vehicles have outsold gasoline-powered ones has obviously caused more people demanding diesel fuel to run their engines. This trend is true not only in the United States, but also in China, Europe, and India. With a limited supply of diesel fuel produced annually, increases in demand causes the price to distort upward.
In the United States, most diesel fuel that is consumed is produced in their local refineries. Additionally, a small percentage of fuel is mainly imported from Canada and the Virgin Islands. From both local and imported crude oil, diesel fuel is manufactured by the local refineries and it is transported by pipeline from these refineries and ports to the terminals in close proximity to the main consuming areas. Then it is put in tanker trucks for delivery to retail service stations.
Lastly, government legislation has caused the regulation that requires the reduction of sulphur content in diesel from 500 million parts per gallon to 15 parts per gallon. The process of reducing sulphur in diesel to this extent will cause greater expense in refining and producing retail-ready diesel fuel for consumption. In the year 2006, the goal was to have 80% of motorist traffic complying with this ordinance; by 2010, 100% of diesel available in the market must comply. As with all industries, the cost of additional stages of processing will be levied on the final retail prices of diesel fuels, causing a greater increase in prices above the already significant impact that high demand has on it.
When looking at diesel prices, it is important to appreciate what drives the increases in prices, and even the standards for when people say prices have increased. For the latter, the relative increase in diesel prices in conjunction to the relative stability or decrease of gasoline prices has increased the perception of more expensive diesel prices. The drivers for increases in diesel fuel prices, however, remain to be that of increasing demand for the limited supply of diesel fuel, as well as costly processing of diesel in order for it to comply with environmental standards.And can this rising prices cause a cheap car insurance company to become cheaper?
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