As consumers, the basic basket of goods that we often purchase in the course of everyday involves diesel and other fuel products, making us susceptible to the impact of diesel fuel prices. Diesel fuel, gasoline, and oil are used not only in running cars and other transport vehicles, but also are used for cooking, heating the home, and powering diesel-powered equipment like snow-blowers, lawn-mowers, and the like. A huge chunk of expenditure goes to purchasing fuel to run these vital activities, which would justify trying to understand as much as one can about how it is priced and where the product itself is from.
To start with, diesel fuel is one of the refined versions derived from basic crude oil. Other forms of crude oil that results from refining include gasoline and distillate heating oil. This fuel type was named after Rudolf Diesel, the German engineer who created ignition engines that make use of diesel fuel.
Diesel petroleum is in fact a distillate of crude oil. While there are many types of distillates that can be derived from crude oil, Number 2 distillate is what is distributed for use in vehicles and equipment in many countries; it is also the same oil base used for distillate heating oils used to heat buildings and run industrial plants.
The chain of processes that create the value inherent in diesel fuel begins from the moment crude oil is purchased. Crude oil, as mentioned previously, is the base ingredient from where diesel fuel is derived. This base ingredient is traded internationally, with price determined by supply and demand dynamics. Crude oil is primarily produced by oil-exporting countries, all of which often belong to big oil cartels that dominate the supply dynamics in the market.
The demand for energy is not limited to the United States, but expands across Europe, China, and India. The thirst for energy for consumption occurs both in the level of industry, as well as individual consumers. On the consumer level, this means that the strong preference for diesel-powered vehicles has led to the need for diesel fuel in order to maintain the operations of these vehicles. In the industry level, expanding economies like China and India, and more stable economies like European ones, all rely on the supply of diesel fuel to run many of their transport sectors and even many of their industries. The high demand from both sectors has driven the prices of diesel fuel up: with limited supply, people use money in order to gain preferential access to the resource.
In addition, governments play a role in determining how diesel fuels arrive at the point of mass consumption. Governments levy hefty taxes on oil refining and distribution companies, many of which already run the regular gas pumping stations. Also, governments have required the reduction of sulphur content in diesel fuel, creating an expensive additional stage in the refining process to reduce sulphur. The additional burden of tax, the cost of operating distribution through gas pumping stations, and the cost of building infrastructure to enable them to comply with government ordinances have driven diesel prices to higher levels even if production costs considerations were ignored.
Knowing these drivers, and just what this resource is all about, allows consumers to better appreciate the dynamics of the energy industry. They will also be able to use their common knowledge of market dynamics in order to predict or protect themselves from diesel fuel prices inflation.
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