Increased popularity of diesel cars pushes up fuel price

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The past spring has been an exceptional one on the motor fuel market in Finland. May 2008 was the first time that diesel oil has cost more on the world market than the more refined petrol, or gasoline.
      “This is truly remarkable. I don’t remember anything like it”, says Jarmo Nupponen, managing director of the Finnish Oil and Gas Federation.
     
Usually, with the onset of spring, when the need for heating oil decreases and driving increases, less-refined distillates, including diesel fuel, fall in price and petrol becomes more expensive.
      However, this spring, diesel fuel has increased even more than petrol. Last week the world market price of petrol was 1,115 US dollars a tonne, while price of a tonne of diesel fuel was 1,295 dollars.
     
The unique situation stems from a change in demand - a massive shift from cars with petrol engines to those using diesel fuel. In Finland the shift was spurred by the car tax reform last autumn.
      The increase in the proportion of diesel cars is a second basic principle in the Oil and Gas Federation’s ambitious plan aimed at significantly reducing emissions from transport by 2020 without reducing the sale or use of cars.
     
The price of diesel fuel at the pump remains just barely below that of petrol, thanks to the tax structure. The retail price of petrol in Finland includes an excise tax of EUR 0.627 a litre, while the tax on diesel fuel is appreciably lower at EUR 0.364 per litre.
      In mid-December the price of a litre of 95 octane petrol cost EUR 1.32, and diesel fuel cost EUR 1.13 a litre. On Tuesday this week, the difference had shrunk to almost zero.
     
All this time Max Kankainen, a CEO from Espoo, has been somewhat worried at the narrowing gap. He decided already late last year to exchange his petrol-driven Honda for a Volkswagen Tigua with a diesel engine.
      Kankainen took delivery his new car on Tuesday at the Espoo VW Centre. In the months before the car arrived, diesel fuel rose in price by more than one quarter. However, sitting at the wheel of his new vehicle, Kankainen insisted that he does not regret his decision.
      The price of fuel was not the only reason for changing to diesel. Kankainen says that the emissions and environmental questions were also important. Diesel cars consume less fuel and emit less carbon dioxide than petrol cars do.
     
Previously the sizeable price differential at the pumps between petrol and diesel had meant that anyone driving a reasonable distance each year could expect to recoup in lower fuel costs the premium in vehicle taxation they paid on buying a diesel model.
      Lower fuel consumption helps to alleviate the problems of higher prices, but diesel cars are not now seen as quite the attractive buy they were just a year ago.


Previously in HS International Edition:
  Emission-based car tax to bring down price of new vehicles next year (2.11.2007)

Links:
  Finnish Oil and Gas Federation

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