If there’s one thing in our daily lives that people love to get heated about, it’s gas prices. Whether it’s the Covid pandemic or wars in the Middle East, there always seems to be a reason why our gas prices are going up. Gas prices affect almost everything we do, from taking the kids to school and getting to work to grabbing groceries and shipping packages across the country – so it’s easy to see why people get so riled up.

So today we are going to answer the question: is diesel cheaper than gas? We’ll look at the history of gas prices, current market dynamics, seasonal variations, and what the future might look like when it comes to diesel vs gas prices. 

Diesel vs gas prices: an overview

Before we get into price charts, it’s first a good idea to get a basic understanding of the differences between diesel and gasoline. Firstly, it’s important to note that both gas and diesel come from the same source: crude oil. 

They are both types of hydrocarbons, which means they are made from carbon and hydrogen atoms, with the amount of each atom determining which type of hydrocarbon it is. For example, the simplest hydrocarbon, methane, has a single carbon atom, while more complex hydrocarbons have increasingly longer chains of carbon atoms. 

Diesel is heavier than gasoline and typically has hydrocarbons ranging from around 12 to 16 carbon atoms. But gas is much lighter, and ranges from around four carbon atoms to 12. There is some overlap between the two, but typically, this means that diesel contains more energy per gallon than gasoline does. 

If diesel and gas prices were based solely on the amount of energy they contain, then diesel would always cost more as it contains more energy per gallon.

A history of diesel vs gas prices

Historically, the relationship between diesel vs gas prices has seen several shifts. Before the early 2000s, prices would often fluctuate, with diesel oftentimes being cheaper than gasoline. This was largely due to the lower production costs associated with manufacturing diesel, as well as the lack of environmental regulations at this time. 

By the early 2000s, stricter environmental standards were being implemented for diesel fuel. For example, a new law that required ultra-low sulfur diesel (ULSD) aimed to reduce the harmful emissions associated with diesel engines. It was found that the combustion of high-sulfur fuels, such as diesel, leads to the production of sulfur dioxide, which can not only cause respiratory problems but can also create acid rain. 

Inevitably, this led to an increase in diesel prices. It meant that refineries would have to invest billions of dollars into new equipment that could remove sulfur in order to meet the new standard. As a result, diesel prices began to surpass gasoline prices, a trend that has continued to the present day.

Seasonal variations in diesel vs gas prices

Another key factor in the debate about diesel vs gas prices is that of seasonal demand. Seasonality is the variation of prices at different times of the year compared to the yearly average price. Gasoline prices have historically been very seasonal. We tend to see gasoline prices go down in the winter and go up in the summer. 

The main reason for this seasonality is simply that much more driving takes place in the summer as families take trips and go on vacation. This increased demand for gasoline leads to higher prices. Conversely, in the winter fewer people are driving so demand is lower and prices are lower.

Diesel fuel is also seasonal, although the effect is smaller than with gas. Historically, the price of diesel was related to the heating oil market which meant higher diesel prices in the winter. As the use of heating oil has decreased, this is no longer the case. Diesel prices in the winter are now typically slightly lower than they are at other times of the year.

Regional variations in diesel vs gas prices

Gasoline and diesel prices can often vary a lot from state to state. States with higher fuel taxes, like California, often see a more substantial price difference compared to states with lower taxes, for example. But there are other factors that contribute to regional differences in prices as well, such as distance from refineries, disruptions to supply on a localized level, and retail competition.

Retail prices for diesel and gas are, in part, determined by how far it must be transported before being sold at the pump. The further it has to travel, the higher the transportation costs for suppliers, whether that is refineries, ports, or pipeline terminals. Similarly, local events that slow or stop fuel production can lead to increased bidding for what supplies are available. Examples of this include pipeline disruptions, refinery maintenance and shutdowns, and even adverse weather events such as hurricanes.

Why is diesel so expensive?

We’ve briefly touched on one of the reasons why diesel is so expensive above, but there are several other factors that contribute to the higher price of diesel vs gas in the US. These include higher taxes, increased production costs, environmental regulations, and global demand.

Higher taxes

If you look at diesel and gas prices throughout the United States, diesel fuel is subject to both higher federal taxes and higher state taxes when compared to gas. The federal tax on diesel fuel is 24.4 cents per gallon, but only 18.4 cents per gallon for gas. This difference in taxation directly impacts the retail price, which is why diesel is so expensive when compared to gas.

Increased production costs

When it comes to production, diesel fuel undergoes a more extensive refining process than gasoline, which makes production more expensive. Because diesel fuel is denser and less reactive than gasoline it is much harder to refine from crude oil. Another factor is that US refineries are typically configured to produce more gas than diesel, which leads to fewer economies of scale for diesel production.

Environmental regulations

Like most Western countries, the US has stricter environmental regulations on diesel fuel when compared to gas. The main regulation that makes diesel so expensive is the requirement for ultra-low sulfur diesel (ULSD), which has a lower sulfur content and produces lower emissions than regular diesel. The sulfur removal process adds more time and therefore cost to the production of diesel fuel.

Global demand

Diesel and gas prices rise and fall often, and this is sometimes due to what is going on in the rest of the world. Because diesel fuel is in high demand globally, particularly in Europe and Asia, world events can lead to increased demand for diesel, which drives up prices internationally. While most of the diesel used in the US is produced here, over 60 million barrels are imported every year.

Diesel vs gas prices over time

So when was diesel cheaper than gas? It’s a question that many diesel owners find themselves asking, especially when diesel prices seem to skyrocket relative to gas prices. As we’ve discussed above, 2005 was an inflection point at which diesel generally started to become more expensive than gas. But due to the other factors we have mentioned, there have been times when the price of diesel has dipped below that of gas.

Below is a chart comparing diesel vs gas prices since 1995, which is when the US Energy Administration’s data begins. As you can see from the chart, before 2005, gasoline was typically more expensive than diesel. From 2005-2010, the new rules around ULSD were phased in. By 2010, all diesel fuel supplied to the market had to be of ULSD standard, and as you can see from the graph, this is when diesel started to consistently be more expensive than gas.

By analyzing the above graph charting historic diesel vs gas prices over time, we can pull out some key trends that highlight the changing price dynamics.

Diesel vs gas prices during the 1980s to 1990s

Before the late 1970s, diesel-powered cars were quite uncommon in the US. This is the period before our graph begins, but it is fair to say that throughout this period diesel prices were generally lower than gas. At this time, diesel was primarily used in industrial settings, and there were fewer regulations on diesel production. As gasoline was required for almost all passenger vehicles, demand for gas, and therefore its price, was typically higher than diesel.

Diesel vs gas prices in the early 2000s

We’ve touched on the regulatory switch towards ultra-low sulfur diesel (ULSD) earlier, and this graph perfectly illustrates how this new burden on diesel production directly increased diesel prices. Almost right on cue, in 2005 with the introduction of these new laws, you can see that diesel prices overtook gas prices. Since 2010, when the regulations came into full effect, diesel prices have rarely dipped below gas prices. 

Diesel vs gas prices  during the 2007-2008 Financial Crisis

At around 2007/2008 on the graph, you can see a huge increase in both gas and diesel prices, with diesel topping out at almost $5 a gallon. Within months, these prices would crash down to almost $2 a gallon. This was, of course, the 2008 financial crisis, when worldwide oil prices fell dramatically due to diminishing demand and the contraction of credit markets. But diesel prices almost always remained higher than gas during this period as the underlying factors that made diesel more expensive persisted.

Diesel vs gas prices from 2010 to 2019

In response to the financial crash, Western governments employed a strategy of aggressive economic stimulus to combat the worsening market conditions. This worked, demand rebounded, and the government stimulus led to prices climbing higher once again. Diesel and gas prices then remained relatively stable throughout the decade, with diesel maintaining its status as the more expensive fuel. 

Diesel vs gas prices during the Covid pandemic

During the Covid pandemic, when the government introduced various restrictions on people and movement, demand for diesel and gas fell to levels similar to the 2007-2008 Financial Crash. When the economy started to open back up from the Covid shutdowns in 2021, demand once again skyrocketed. 

Lower demand had led to lower production of diesel and gas, and thus there was a shortfall in these commodities just as demand was once again growing, leading in part to the huge increase in prices we have seen in the past few years.

Conclusion

As we have seen then, the question of whether diesel is cheaper than gas in the US is influenced by a variety of factors including government regulations, seasonal variations, regional differences, and things that are happening around the globe. While diesel was often cheaper than gas historically, since the introduction of environmental regulations around diesel, prices for diesel as almost always been higher than for gas.

Occasional supply gluts, economic downturns, or policy changes can make diesel cheaper than gas, but the general trend is that diesel will almost always be more expensive than gas. But this doesn’t mean it will be this way forever, with advancements in fuel technology, the rise of electric vehicles, and ever-evolving environmental policies likely to impact the future landscape of fuel prices.

While diesel is more expensive than gas, by taking care of your diesel engine you can make sure you get the most bang for your buck every time you fill up. Archoil’s Diesel Performance Kit will not only ensure your engine is cleaned and protected, but it will also boost your MPG, saving you money on your diesel fuel.

Looking to find out more about diesels and how they work? Why not check out our Resources page where you will find lots of great articles like this about all things diesel.