Fuel Prices............WHY ??

Dennis M M wrote:
Inelastic demand is the big driver. Diesel consumption in the US is primarily from commercial trucking. The demand is there regardless of the price, therefore inelastic demand. Raising the price does not decrease demand, reducing the price does not increase demand. Therefore no increase in sales with a price reduction, so no advantage to the producer.

Ultra Low Sulfur is why diesel now costs more tha gasoline in general.

But the inelastic demand is why you don't see diesel prices changing nearly as much:
- If you have a truckload of merchandise that has to be shipped 100miles, there isn't much room to cut the fuel (diesel) consumption required, so you buy the same amount of diesel regardless of the price. Your driver is limited to a realatively small number of fuel stations he can get into. 20yrs ago, they already put a lot of emphasis on fuel efficency so the low hanging fruit is already gone.
- With passenger cars (mostly gas), if the price spikes, people slow down to increase mpg, car pool, combine trips, if they have more than one vehicle, they try to use the more fuel efficent one more often. A typical two car family with a big suv/truck and a passenger car can probably shave off 20-30% of thier fuel consumption with just a modest amount of effort.

So by supply and demand rules, if gasoline prices go up, users (passenger vehicles) reduce thier demand and that can drive prices back down but as the prices go back down, they drive more, so you see the price seesaw. If diesel prices go up, unless it is extreme, they keep buying diesel. Likewise when the price goes down...they keep buying diesel,so while there is price movement, it is much more gradual and you don't see the big swings.

One interesting thing that trucking companies are starting to buy natural gas powered trucks. Right now it's a tiny percentage and there is debate if it's a good long term option as fueling stations are limited but if it takes off, we could see a change in the diesel markets.