Diesel is the essential grease of the modern economy, literally and figuratively. While consumers are right to complain about the over 9% inflation that recently characterized a 12-month period in America, truckers and farmers have felt the sting of inflation even more sharply. Of course, when food production and transportation services become more expensive, consumers ultimately feel that sting, too.
Roughly a year ago, a gallon of diesel would have set a farmer driving a tractor or a driver driving a semi $3.28. Over the year that ensured, that price rose to $5.52/gallon, an increase of 68%. By comparison, the price of regular gasoline has risen 42% over the same period.
More recently, the price of diesel has come off of its recent peak in conjunction with declining oil prices. On June 20, 2022, the price of on-highway diesel fuel in California was $6.92/gallon according to the U.S. Energy Information Administration (EIA). By July 25, that price had dipped nearly 8% to $6.39. But that’s still atmospheric. A year ago, the price of a gallon of on-highway diesel fuel in California was $4.20.
Many Americans are simply unaware of the importance of diesel fuel or the role it plays in their lives. After all, this is no longer the 1970s when a much higher share of Americans drove diesel-powered vehicles. But diesel, like a popular coffee/donut chain, keeps America running. German engineer Rudolf Diesel supplies the fuel its name. He patented his original design in 1892. Understanding how diesel is produced provides a better understanding of why prices are rising. Breaking down underlying components that impact final price supplies an even clearer picture.
How It’s Made
In the U.S., diesel is produced alongside regular gasoline and other energy byproducts in a traditional petroleum refinery. These plants take crude oil and distill it by heating liquid up to 400 degrees Celsius, turning it into vapor. Once in this form, it enters a fractional distillation tower, whereby it begins to cool as it rises. As it reaches certain temperatures at different heights, it returns to a liquid state by which distillation plates capture it and siphon it off into a holding tank. When the vapor falls to a temperature between 200 and 350 degrees Celsius, it forms into diesel fuel. Another way refineries produce diesel is by taking the shorter hydrocarbon chains that rise to the top of the tower and combining them.
According to the EIA, there were 130 operable petroleum refineries in the U.S. as of the beginning of the year. As of 2021, the U.S. produced roughly 1.6 billion barrels of diesel, of which about 1.4 billion was consumed by consumers. The EIA notes that even though the U.S. produced more than it consumed, it still imported about 100 million barrels.
US petroleum refineries produced an average of 11-12 gallons of diesel fuel for each 42-gallon (U.S.) barrel of crude oil. The implication is clear – diesel prices will closely follow crude oil prices. Prior to 2005, most diesel sold in America contained high quantities of sulfur. In 2006, the U.S. Environmental Protection Agency issued requirements to reduce sulfur content. As a result, diesel fuel sold in the U.S. today is ultra-low sulfur diesel.