At $4.77 a gallon, truckers are paying through the hose in San Diego.
Diesel prices are up 38¢ in seven days, regular costs $3.96 a gallon on average

Why are diesel prices climbing?

Diesel is the cheapest fuel to refine, but right now, thanks to arbitragers driving the price of oil to artificially high levels, ($126 a barrel today) the oil in a gallon of gas now costs $3 a gallon - and that's before refinery markups and about 67¢ in taxes.

Compare this price to February 2 of this year when you could buy a gallon of gasoline in San Diego for as little as $2.99 a gallon. What we are seeing with our fuel prices isn't just the result of market gaming and price redlining (although that is a big part of the equation), it is also about massive fundamental shifts in global demand.

Diesel used to be a byproduct of gasoline production. Refiners made diesel on the way to making more profitable gasoline. It isn't that way any more: A typical barrel of oil yields about 10 gallons of diesel fuel, and about 20 gallons of gasoline. Meanwhile, demand for diesel has increased globally, while gasoline demand has not increased proportionally. In fact, in the next several years, gasoline will be a byproduct of diesel production.

Factors behind higher diesel prices.

ULSD - Ultra-Low-sulpher Diesel mandates not much of a factor

We're betting that refineries will blame government clean air mandates for high diesel costs, but the according to Diesel Fuel News, the amortized costs of removing sulpher from a gallon of diesel is about 2.5¢ per gallon. This new diesel is also exceptionally clean - so much so that Europe and the U.S.A. have switched over to a cleaner diesel fuel standard.

Higher demand for ULSD is a factor

The raw manufacturing costs of ULSD aren't that significant, but because the product is so desirable, more than 50% of all European cars now run on diesel according to Platts News. This has increased demand for the former gasoline "byproduct."

Increased demand from China

As China's economy grows, demand for its heavily dependent diesel fleet is growing, too. Demand for oil in China is growing at a rate of 7.5% per year according to the the Institute for the Analysis of Global Security. This rate is seven times faster than U.S. demand.

Diesel delivers more the bang for the buck than gasoline

A diesel engine is more efficient than a gasoline engine. Some diesel trucks deliver almost as much horsepower as their gasoline equivalents and get nearly twice the miles per gallon. In passenger vehicles, you can expect to improve mileage by about a third when you choose a diesel engine instead of a gasoline engine. The diesel-powered Volkswagon TDI for example, compares favorably with a Prius in terms of gas mileage delivering an EPA rated 40 miles per gallon.

Less demand for gasoline

While demand for diesel has increased, gasoline demand has declined. For the first time in 17-years, Americans are buying less gas. (Reuters).

And finally when you add in additional factors such as market gaming by arbitragers, price redlining by refineries, anticompetitive mergers by the FTC, and 10 years of disastrous energy and foreign policy ... you get precisely what we are experiencing right now ... $4.77 a gallon diesel, and horrific economic malaise.

And that's the good news. The bad news is that this is going to be the worst energy crisis since World War II. Let's hope it doesn't get worse. Other wars have been fought over less.