Why don't diesel prices drop with gas prices?

Catherine Litt / Kamloops Daily News
December 5, 2011 01:00 AM

YOU ASKED:Regular gas prices are dropping. However, diesel remains at the summer pricing levels. Why is that?

- Len Bosch

OUR ANSWER:You're absolutely right about the price difference, Len.

Natural Resources Canada keeps a recordof the previous 52 weeks of average gas and diesel pump prices and the numbers show diesel climbed to $1.36.9 a litre on Nov. 29 - about 10 cents more than what it sold for on Aug. 30.

Gasoline, meanwhile, dropped to $1.06.2 on Nov. 29 - way down from $1.31.9 on Aug. 30.

As for why one climbed and the other dropped, we asked Jason Parent, senior associate with The KENT Group in London, Ont., to enlighten us. He provides analyses on petroleum prices.

"The answer is relatively simple," said Parent.

"Both diesel and gasoline (at the wholesale level) are commodities in their own right, each with their own unique supply and demand fundamentals. So these wholesale prices move independently from crude oil prices (the basic input cost for both products)."

This also means that wholesale price trends will tend to be affected by surges or dips in demand or supply.

In the case of diesel, demand reaches its peak in the late fall and winter months which - all other things being equal - usually results in increases in the cost for diesel at that time, said Parent.

"Gasoline has a peak demand around the spring/summer driving season which is why we usually see surges in gasoline prices around that time and why prices tend to drop off when gasoline demand wanes in the fall/winter months," added Parent.

Another contributing factor to the rise in diesel prices in recent weeks was a diesel shortage resulting from some issues at refineries in Western Canada - some unexpected shutdowns in diesel production coupled with difficulty in securing alternate supply sources.


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