Diesel v Unleaded Pricing

I've written a couple of fuel blogs; under my profile...

Landy, I think you will find the biggest issue is lack of buying power by the retail diesel buyer.

Most unleaded fuel is consumed by the retail motorist, and is purchased at retail service stations. For most people, price is the major motivation in choosing the fuel they use. This creates competition and leads to discounting, particularly when there is an oversupply of fuel (ie not a lot of spare storage capacity) in the system.

With diesel, the majority (by far) is consumed by industry (ships, trains, transport industry, etc). It is also used to run heating for homes, offices etc in many countries. The retail motorist is a very small player in the diesel market.

The big industry players negotiate prices (or discounts) at a national and international level. The fuel companies compete heavily to win the big supply contracts. We (diesel driving motorists) are such small players, discounting to win a few more percentage points in market share from us would probably add little if any value to the fuel companies.

Market forces are completely against us, I'm afraid.

Diesel is much cheaper to produce than ULP, but unfortunately, that means little in this case.

Norm C

What we need to do is encourage a lot more motorists to buy diesel cars like they do in Europe to create a larger demand.

Is your non-4WD a Diesel?

Alan

in the latest New Scientist they have discovered a Fungus that can produce Diesel Hydrocarbons when it grown on cellulose and they are hoping to build fermenters to produce Diesel Fuel !! Now that's interesting.

ATM, diesel and ULP are about the same here.Last week in Devonport diesel was actually 2cpl cheaper.Whish I had have had a tanker to fill up.

Diesel was half price of petrol until 1979 and the government of the day doubled it overnight

I think more demand would lead to even higher diesel pricing. I mean it's not just coincidence that some small car manufacturers have started making diesel models and the price has gone up.

Here in WA the diesel price is consistently at least 10c/L more than ULP. That seems to have reduced somewhat from some months ago when it was 20c plus.

I think demand has driven the price up, diesel should be cheaper as it takes less refining that ULP! But yes these days as far as production costs goes, who knows, the sulphur thing could be just another excuse - anything to rise the price.

Really when the price of oil started rising so did petrol / diesel, only problem is that it doesn't seem to come back down in proportion to the fall of oil prices! I don't know maybe they though, hey diesel has been too cheap for too long, since prices are going up they don't have a choice, we'll make it dearer then petrol and maybe no one will notice!

We did switch from a diesel foruby to a petrol car (Forester) but that didn't last, a fourby is just so much more versatile, and nothing beats the low end diesel torque!

At the risk of sounding controversial in a forum dedicated to driving; perhaps we could look at this another way – is ULP too cheap?

Before I’m lead off to a ritual stoning there are a few things that should be taken into account in my defence for uttering something so sacrilegious.

Often the argument is put forward that diesel was always cheaper than ULP and that it is cheaper to make out of crude oil; so what has changed? Transition to low-sulphur diesel fuel has affected diesel fuel production costs and a significant increase in global demand for this fuel has changed the demand / supply equation.

Global demand for the mid-distillates, which includes heating oil and diesel fuel, has increased dramatically with strong demand from China, India, Europe and the United States. This has come at a time when global refining capacity is stretched to the limits.

In India diesel accounts for around 30% of new vehicle sales and this is increasing and expected to push towards 50% over the next few years. Diesel cars in Europe accounted for just over 50% of all new vehicle sales in 2007. In the early 1990’s this number was around 14%. That’s a few million more diesel vehicles every year.

China is in a class of its own, sucking up diesel at a rate of knots as it emerges as an economic powerhouse; and this isn’t going to change.

In Australia, industrial and commercial interests are by far the largest consumer of diesel. Retail diesel sales accounts for a very small percentage of actual sales and does not attract the same level of discounting that ULP does. Whilst that creates some angst, less face it this isn’t unique to fuel. Anything that is in demand that has a small consumer base with little purchasing power will usually face a similar issue. That isn’t to suggest we are ‘being screwed’ it is just that we pay the ‘full’ price. Try booking accommodation in Broome during the Grey Nomad migration; not surprisingly the price is much higher than off peak for much the same reason.

But back to the point; diesel is an essential commodity that is entrenched in industry and our economic structure. Mining companies need it, transport companies need it, rail companies need it, why, because we still need goods transported around the country and we continue to dig resources out of the ground. What this has meant is demand for diesel has proven to be relatively ‘inelastic’ regardless of price.

By comparison, demand for ULP, both in Australia and abroad has proven to be ‘elastic’. As the price has risen consumers have cut back on consumption and consequently demand has fallen. If this wasn’t the case we would most likely be paying more for it.

There are a number of ways the spread between diesel and ULP could narrow. Two stand-out. Firstly, the price of diesel could fall relative to ULP, or conversely, the price of ULP could rise relative to the price of diesel.

Given the global demand for diesel I doubt price pressures will see any substantial change in its price structure, other than influences such as more refining capacity, which is unlikely in the near term, or falls in the price of oil.

Perhaps we should be careful what we wish for, otherwise the fuel retailers might just take the hint and close the gap by reducing the discounts on ULP and we end up paying more for it than we currently need to……..