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Diesel fuel is one of the most important commodities on the economic landscape. The reason for this is that the transportation used in almost all aspects of the economy is fueled by diesel engines. Rising diesel fuel prices usually translate to rising costs of goods and services. In order to know what can be done to slow down this increase, you as a consumer need to appreciate its causes.

Elements of Worth

There are several basic elements that determine the worth of a gallon of diesel. About sixty percent of the cost of diesel reflects the price of crude oil, which is raw material for diesel production. Crude oil is purchased from oil producing countries and subsequently brought to refineries where the ultra-low sulfur diesel, among other petroleum products, is extracted. Given a barrel of crude, a refinery will be able to distill about one tenth of a barrel of diesel. Refining accounts for nearly twenty percent of diesel fuel cost.

The remaining elements of the cost of diesel fuel are government taxes and the expense of advertising and distribution. A ten percent excise tax is levied onto all fuel products that are manufactured in the country. Although foreign fuel avoids this, it is generally cheaper to buy locally refined fuel as import taxes generally translate to higher unit price. Marketing and distribution only makes up five percent of total diesel fuel cost, but this can often be the most volatile factor affecting the value of diesel fuel.

Origins of Increase

Basically, the price of everything is dependent on supply and demand. If supply is low and demand is high, prices will go up. If supply is abundant, the price will stay steady, and may even decrease when demand wanes.

Crude oil supply is dependent on oil producing countries, so anything that disrupts their production activities, like wars or economic embargoes, will drive the price of both world crude and diesel up. Refining expenses are generally pretty constant, but both local and foreign companies compete for refined fuel. If the demand of foreign countries for the diesel produced by local refineries increases, this can ultimately result in elevated fuel costs.

The most unstable aspect that affects diesel fuel is undoubtedly local marketing and distribution. Diesel fuel is in such high and constant demand that fuel stockpiles are generally pretty low. This means that if there is a sudden spike in fuel consumption, the warehoused supply will not be enough and this will drive the price of fuel up. Another factor is distance; consumers close to refineries tend to pay less because they avoid transportation costs. Local competition also plays an important role in regulating fuel prices.

Control Stems from Understanding

World supply and demand, international politics, economic pressures, all of these play interrelated roles in the cost of fuel. Though they seem beyond the grasp of the non-economist layman, it all really boils down to supply and demand, and this is something anyone can understand. Saving fuel and lowering consumption is not only good for the environment; it decreases demand, and ultimately, cost. Programs which promote peace and goodwill among nations do not only make a better world; they result in less disruption of supply lines, and again, decrease fuel costs.

The factors that affect diesel fuel prices seem complex, but an understanding of the basic principles can empower the individual consumer. Unsurprisingly, it would seem that doing the right thing really is the right thing to do.

Jason Livingston is the operator of ibuylessgas.com and is an independent business owner and distributor of Ecomates Ethos FR+ Fuel Saver. Jason is enthusiastic about helping regular consumers improve their fuel economy.

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