Diesel – it's used to run your vehicles, equipment, boats, heat your home, and much more, but over the last year prices have been at record highs making it uneconomical for consumers.
There was a time when diesel was much more inexpensive than gas, leading consumers to switch to diesel-ran vehicles to cut costs.
Over the last two years, that has not been the case, as diesel is now 30 to 40 cents per litre higher than gasoline.
The significant difference in price when it comes to diesel is due to a number of reasons – one of them being the fact that diesel has become cleaner in the last 20 years, which in turn costs more money to produce.
“Many refineries especially those in the United States converted to producing renewable diesel,” says GasBuddy Petroleum Analyst, Patrick DeHaan. “Unfortunately, the output of renewable diesel to traditional diesel is much less, so when refineries make that transition there is less diesel capacity as a result.”
“The diesel specification has improved vastly over the last two decades compared to the 70s and 80s when you would see diesel emit thick black soot, diesel is very clean now. The cost of reducing Sulphur out of diesel is very expensive,” adds DeHaan.
The time of the year has also affected the cost of diesel, as it’s used to heat homes and businesses in the winter months.
“Diesel is essentially the same product as heating oil so there is more demand in the winter months especially if it’s colder than normal.”
Lastly, DeHaan explains that Russia’s invasion of Ukraine has impacted diesel prices.
“Russia produces a very heavy type of oil that can yield more heavy products like diesel. With a lack of heavier oil in the market, there is more of a lighter product, which doesn’t produce as much diesel. There have just been more issues that hit diesel compared to gasoline but there should be an improvement.”
According to the International Energy Agency, Russia is the world’s largest oil exporter to global markets and the second largest crude oil (which is what diesel is made from) exporter behind Saudi Arabia. In addition, they are the world’s third-largest oil producer behind the United States and Saudi Arabia.
“That heavy oil is tough to come by. Canada has a lot of heavy oil, but again Canada’s politics have gotten in the way of the further development of oil fields. That’s a huge headache right now that’s impacting diesel much more than light products like gasoline.”
There is good news in all of that though, as DeHaan does believe that the price of diesel will begin to see a decline.
“First off, Mother Nature is helping us out with warmer conditions than normal. Much of Canada and the United States are much warmer. That hasn’t reflected in the price of diesel but I do expect some relief, which is rare because demand is still so high.”
Another driver in decreasing diesel prices will be the increased production capacity coming online.
DeHaan explains that significant refinery expansion projects are ongoing in Asia, the Middle East, and Africa, which will add more of a diesel supply to the market.
“Traditionally refineries produce two parts gasoline and one part diesel for every three barrels refined. In the year ahead, with the refinery expansions coming online, they are actually skewing more towards diesel, meaning that’s it going to help diesel prices more than gasoline.”
When it comes to the refinery aspect of it, they are not privy to just making one product, they make several different types of fuel all in the same place.
“It’s like when you go into the auto parts store there’s not just one type of oil, there are many types of oil on the shelf and that’s what refineries get to choose. Depending on what they want out of their refinery is contingent on what they put in. If the refinery wants to produce more diesel, they’re going to have to get more heavy oil. If they want to make more gasoline, they’re going to acquire more light oil or sweet crude oil. Depending on what goes into the refinery, the yield can change.”
The quality of oil that goes into the refinery will also determine the type of fuel that is produced. The higher the quality the heavier the fuel such as diesel. The lower the quality the lighter the fuel that is produced such as gasoline and jet fuel.
“Essentially refineries are superheating the oil that they are putting in and they get out all sorts of different products. Refinery yields such as gasoline, diesel, and jet fuel can be changed slightly depending on the crude oil they are putting into the refinery.”
The Co-op Refinery Complex in Regina produces jet fuel, gasoline, diesel, naphtha, ultra-light products, and heavier products like plastics and bunker oil feedstock.
That refinery distributes roughly 17 million litres a day of product and produces about 130,000 barrels a day.
As of Thursday afternoon, the price of diesel in West Central locations are between 193.9 to 206.9 cents per litre.