Diesel fuel prices have been steadily falling this month, offering relief to truckers and other customers, yet still remain historically high.
Michigan’s average price per gallon is $4.85, down from $5.40 a month a ago and $5.96 at its peak in late June, according to AAA Michigan. Nationally, the average price has fallen 7 cents since last week and 43 cents since Dec. 5 to $4.54, according to the Energy Information Administration.
The average price has remained above $4 a gallon since February for the fuel that’s used to transport the bulk of goods purchased by U.S. consumers, and sections of the country including California and New England are still seeing prices above $5.
By comparison, the average price for regular unleaded gas is $3.15 in Michigan and $3.17 nationally, according to AAA.
Patrick De Haan, the head of petroleum analysis at GasBuddy, said the stubbornly high prices stem from several factors.
First, U.S. production of diesel is slim. Out of one barrel of crude oil, two-thirds becomes gasoline and one third becomes diesel, he said. So when oil refineries have production issues, diesel output is particularly affected.
Second, the war between Russia and the Ukraine has reduced the amount of oil transported from Russia to the U.S.
“Russia produces a lot of heavy oil, that heavy oil produces … diesel, and because countries aren’t importing as much of that heavy oil, the refineries (in the U.S.) aren’t able to produce as much heavy product like diesel,” De Haan said.
In addition, refining capacity has decreased about 4% since 2020. According to the EIA, in 2020, there were 135 operable refineries in the U.S. and as of the start of 2022, there were 130.
Third, the government is incentivizing refineries to produce more biodiesel.
According to the U.S. Department of Energy, “biodiesel is a domestically produced, clean-burning, renewable substitute for petroleum diesel. Using biodiesel as a vehicle fuel increases energy security, improves air quality and the environment, and provides safety benefits.”
The Energy Department, the U.S. Department of Agriculture, the U.S. Department of Transportation, the IRS, and other government agencies are giving grants, tax credits, and other means of support to producers of biodiesel.
“The problem is that biodiesel output is lower than traditional diesel … by incentivizing those conversions you’re essentially incentivizing production of diesel to drop,” De Haan said.
Lastly, diesel fuel is also being used as a replacement of natural gas to heat homes and buildings in Europe due to the decrease in coal manufacturing, De Haan said. On Monday, New England’s average price for diesel fuel was $5.15, according to the EIA.
“So, having said all that, there’s been a lot more pressure on the price of diesel because there’s less supply and more demand,” he said.