Gasoline to average below $3 next year; diesel rate still sluggish

By Tyson Fisher, Land Line staff writer | Friday, November 14, 2014

Regular gasoline prices are expected to average less than $3 a gallon for 2015, according to the U.S. Energy Information Administration. Meanwhile, diesel prices are still above regular gasoline, a trend that has been around since September 2004.

The EIA expects 2014 regular gasoline averages to be $3.39/gal. Prices have not averaged below $3 since 2010 when the average was $2.782/gal. On-highway diesel also averaged below $3 in 2010 at $2.992/gal.

While prices are dropping for both diesel and regular gasoline, diesel prices are declining at a much slower rate. According to Tim Hess of the EIA, there are several factors involved.

“The faster rate of gasoline price declines largely reflects typical seasonal patterns,” Hess told Land Line in an email. “Gasoline prices generally decline during the fall as driving season ends and specifications switch to winter grade gasoline, which is less expensive to produce.”

Hess also pointed out that distillate fuels, which includes diesel fuel and fuel oils, tend to go up in price around this time of year as demand increases for heating purposes. Distillate markets in the Midwest have been tight, leading to a higher national average.

“Midwest prices should begin to decrease in the coming weeks,” Hess explained. “Refineries in the area are currently increasing runs as they come out of maintenance, and the harvest is concluding.”

That may explain the short-term, but what about the long-term trend of higher diesel prices?

Worldwide demand for distillate fuels has increased as the economy grows. Europe, China, India and the United States are moving more goods as consumers are spending more. Distillate fuels such as diesel fuel is needed for the transport of these goods.

Pre- and post-production costs are also on the rise. While winter grade regular gasoline is cheaper to produce, lower-sulfur diesel fuel has added to production and distribution costs. Diesel may burn cleaner, but at a cost to the consumer. Furthermore, the Federal excise tax for on-highway diesel is 6 cents per gallon more than regular gasoline.

Will diesel prices ever meet or dip below regular gasoline prices in the near future? Probably not.

“While seasonal trends will likely continue, where diesel price gets closer to gasoline prices during the spring and summer, the trend of stronger diesel growth globally will likely mean diesel will continue to fetch a higher price than gasoline most of the year,” Hess said.

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