The trucking and freight industry depends on diesel fuel to run. Around 20% of petroleum consumption in the US is diesel fuel. And while gas prices only rose around 10% since the start of 2022, diesel prices climbed around 38%. As of January 2023, the national average diesel price is around $4.55 per gallon.
So what’s driving the current trend for US diesel prices, and when will they go down? Why are diesel prices so high? Read on to learn more about what’s happening with diesel prices in 2023, and what that means for your business.
How is diesel made? Is diesel a fossil fuel?
Diesel is a fossil fuel source that comes from refined crude oil. The process happens in an oil refinery, where crude oil is exposed to extreme heat, which separates it into different substances, like diesel and gasoline.
Refineries in the US produce around 11 to 12 gallons of diesel fuel from every 42-gallon barrel of crude oil.
It’s also possible to make biodiesel — a kind of diesel fuel that comes from vegetable oils and animal fats. Biodiesel can run in the same type of engine that uses diesel fuels. However, far fewer facilities in the U.S. manufacture biodiesel, and currently, it isn’t as widely used as petroleum-based diesel.
Why is diesel more expensive than gas?
There are a few factors that affect the overall price of diesel.
For one thing, diesel fuel is more in-demand than gasoline in the US, according to the US Energy Information Administration (EIA). Additionally, the government also requires refineries to remove potentially dangerous sulfur from diesel fuels in the US. The extra step in the refining process increases the overall price for consumers.
The current season can also play a role. Demand for heating oil increases in the colder seasons, like fall and winter. Heating oil and diesel oil are made at the same time, so the seasonal demand for heating oil can put pressure on diesel prices.
What affects diesel prices?
Since diesel and gasoline both come from crude oil, many of the same factors that affect gasoline prices also affect diesel prices.
The single biggest factor is the current price of crude oil. The current price for a barrel of crude oil was around $80.13 as of January 17th, 2023.
Factors that affect the overall price of crude oil include:
- Current Diesel Demand: Demand for oil continues to grow globally. And, as we’ve already talked about, the demand can change seasonally.
- Current Supply: Lowered oil supply throughout the global supply chain can affect the overall prices worldwide.
- World political factors: Fewer oil exports from Russia’s war on Ukraine contributed to rising crude oil prices in 2022.
- Speculation: Speculators that trade oil futures influence the overall price of oil, though experts disagree on exactly how much.
Additionally, diesel fuel doesn’t magically appear at pump stations across the country. It has to be delivered there by rail or truck. So, the cost of transportation for diesel fuel also affects the overall price at the pump.
For example, around 50% of U.S. diesel production occurs near the gulf coast. Areas of the country furthest from the gulf coast usually have the highest diesel prices.
How do diesel prices affect trucking?
Ultimately, high diesel prices contribute to higher shipping costs, both for businesses and consumers.
Many independent truckers pay for their own fuel out of pocket. When diesel prices rise, they naturally have to raise their rates to make up the difference in lost profit. This, in turn, raises shipping rates for businesses— and you may need to pass the price increase on to your customers, too.
When will diesel prices go down?
Increased fuel prices may seem like a “new normal” in an era of inflation and constantly rising prices. Thankfully, there may be a light at the end of the tunnel. According to an EIA report, U.S. diesel prices are expected to fall around 16% in 2023, leading to an average of around $4.20 per gallon. And for 2024, EIA predicts prices of around $3.70 per gallon.
Additionally, the number of biodiesel refineries throughout the U.S. continues to grow, which may offer an alternative fuel source for trucks, or other equipment that runs on diesel.
However, no one can tell what the future will hold — and current diesel prices may continue to strain your bottom line. So if you need a logistics partner to help you find affordable solutions for your shipping and transportation needs, we can help you out.
A Northeast transportation company you can trust
If you need a logistics company to steer you through 2023 and beyond, N&D Transportation Company Inc is here to help.
With over 50 years of industry experience behind us, we know how to adapt to a changing landscape — and we can help your supply chain do the same.
We can help you find the most cost-effective shipping solutions for your business. We can help you with direct distribution in-house and internationally with the help of our partner carriers.
Contact us today for more information on how we can help your supply chain thrive.