What Drives Diesel Prices in Your Transportation Strategy?

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When we think about the cost of fuel—particularly diesel—we often think about the prices on signs as we drive down the highway. Prices at the pump may represent the holistic cost incurred when moving goods, but it does not tell the underlying story about why prices fluctuate.

List outlining the 4 factors that drive diesel prices.

Wholesale diesel prices are comprised of a few key variables that influence price volatility at the station level. Understanding how the components embedded in a gallon of diesel vary by time and location keeps shippers well-informed about this complex cost.

Breaking Down the Diesel Fuel Cost Build-up

  • Crude Oil Input costs

  • Refinery Cost & Margin

  • Wholesale Distribution and Storage

  • Transportation and Taxes.

Traditional retail-based fuel reimbursement practices mask these unique components.

Crude Oil Input

Crude oil is arguably the world’s most vital commodity, with many factors contributing to price fluctuations in near-real-time. Crude oil accounts for 40-60 percent of the cost of diesel fuel on a per-gallon basis. This makes it the largest and most volatile component of a refined product’s price buildup. As a result, a strong relationship exists between the price of oil and the price of gasoline and diesel – price spikes in one often correlate to price spikes in the other.

Interested in understanding price drivers for crude oil? Read more in this blog.

Refinery Cost and Margin

After refineries input crude oil to manufacture into diesel, a selling price is established for the next buyer. The per-gallon price difference between the raw crude oil inputted into the refinery and the price of diesel is referred to as the refiner’s margin or crack spread. This margin varies based on refinery economics, planned or unplanned outages, facility location, and each facility’s operational costs.

Ultimately, a refiner’s margin is built into the per-gallon cost of diesel.

Wholesale Distribution and Storage

Next,  moving refined products from the refinery gate to the storage terminal influences the diesel price build-up. It is influenced by the mode of transportation used to complete the movement.

Distribution and storage account for the lowest individual cost in the diesel price buildup. The volume of diesel products stored and transported prior to its consumption makes this cost minimal.

Transportation and Taxes

The final leg of diesel price build-up is fuel transportation from the storage terminal to the fueling location. Tanker trucks are the most common form of delivery. Unfortunately, truck delivery is the costliest and least scalable form of refined product transportation.

Additionally, taxes play a significant role in determining the price of diesel at the wholesale level because taxes vary by location. The heatmap below highlights the diesel tax landscape across the U.S.

Tax variance by geography is one of the most significant elements of the diesel price buildup that will dictate the price of fuel in a shipper’s network and their differences by geography.

Using true costs and accurate data brings transparency to a shipper’s fuel costs. Pairing this information with a firm understanding of the energy market and all its price influencers positions them with the most effective transportation budgeting strategy possible.

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