How to Buy Wholesale Diesel
Purchasing wholesale diesel can be an intimidating prospect. After all, diesel is an expensive investment, and the fuel market can seem complex and overwhelming. If you’re unsure of where to start, or have been purchasing for years and still not confident about the process, here’s Roady’s guide for savvy wholesale diesel purchasing.
Who Should Purchase Wholesale?
Since wholesale diesel is significantly cheaper than purchasing diesel at the pump, it may seem that anyone who can purchase wholesale diesel should be. However, in practice, some companies are better suited for purchasing wholesale diesel than others.
Consumption and storage are, of course, a huge part of this. Even in ideal storage conditions, diesel is best if used within 6-12 months to avoid potential contamination from water, microbes, fungi, and bacteria. While agricultural companies, fuel stations, construction companies, and businesses that use diesel generators for electricity may easily be able to move through their diesel supply in this amount of time, smaller businesses may not. If you don’t have high-quality storage tanks or if your business’ diesel usage fluctuates in a non-predictable way, purchasing wholesale diesel may end up being more expensive for you than buying smaller amounts as you need them from the pump.
However, if you do have access to the proper storage equipment, you don’t necessarily need to be a heavy consumer in order to benefit from purchasing wholesale diesel. A farmer can be an effective wholesale diesel purchaser if he or she understands when the busiest times at the farm are; likewise, small-scale trucking fleets may benefit from having a pump at their location so their truckers can fuel up before heading out.
What Type Should You Purchase?
There are many different types of diesel, distinguished by their chemical composition and viscosity. Diesel #2, or 2-D, is the most popular kind of diesel fuel, and the type recommended by automakers. Viscous, lubricating, and not nearly as volatile as other types of diesel, vehicles that use 2-D experience increased MPG and lower operating temperatures. However, in cold environments, 2-D has a tendency to thicken, which makes it problematic for winter conditions.
Diesel #1, or 1-D, is more volatile and less viscous than 2-D. Unlike 2-D, 1-D doesn’t contain paraffin, which means it doesn’t gel in cold weather. However, since it is more refined than 2-D, 1-D is usually more expensive. In the winter, D-1 and D-2 are typically mixed to produce a diesel blend that has a much lower risk of fuel gelling.
Diesel #4, #5, and #6 are much less common than 2-D. Diesel #4 is very thick and used in boilers and industrial plants. Diesel #5 is almost exclusively used by the Navy, and must be heated prior to using. Diesel #6 is so thick it can only be pumped if it is heated first, and it is such low quality it is primarily only used by container ships and power plants.
Off-road diesel is chemically identical to 2-D. However, off-road diesel is not subject to the same taxes as highway diesel and so is significantly cheaper. To prevent unauthorized use of off-road diesel, red dye is added to the diesel to distinguish it. Using red diesel in vehicles or equipment on public roads is illegal and can result in criminal charges and/or fines over a thousand dollars.
The majority of diesel fuel of the above types that is available in the USA is ultra-low-sulfur diesel, or ULSD. Since sulfur is one of the harmful emissions from diesel fuel, there are only a few select industries that are still permitted to use low-sulfur diesel instead of ULSD.
How Much Should You Pay?
Diesel prices fluctuate depending on worldwide supply and demand, national economic trends, what season it is, and even where you are (the closer you are to the Gulf Coast, the cheaper diesel will be). According to the US Energy Information Association, the price of a gallon of diesel reflects the price of crude oil (49% of the cost), distribution and marketing (18% of the cost), taxes (17% of the cost), and refining (15% of the cost).
For wholesale purchasers, having a solid grasp on trends in pricing is key for making smart buying choices. For example, since heating oil and diesel fuel are produced at the same time, an increase in the use of heating oil in the winter can subsequently increase the price of diesel fuel. Prices also tend to trend upward during periods of high farming activity (such as during harvest), as the majority of farm equipment is run using diesel.
Services like the Oil Price Information Service (OPIS) can be excellent resources for buyers who want an understanding of the market beyond seasonal swings. OPIS, and resources like it, offer daily and historical price reports available for purchase and can help you determine whether the price your vendor offers you is fair.
Should You Sign a Contract?
Once you’ve done your research and found a wholesale partner, it’s time to set up your buying account. Some wholesale vendors have additional requirements for customers in order to sell wholesale diesel to them, such as requiring customers to be established businesses, or having a minimum purchase amount.
Your wholesale partner may also require that you sign a contract with them, or they may give you the option to sign one. These contracts can vary greatly from vendor to vendor, from term lengths that differ by more than 10 years to differences in how flexible or fixed prices may be. If you have questions about the contract, ask; if a vendor isn’t willing to explain the terms of the contract to you, take your business elsewhere.
Whether or not a contract makes sense for your business depends on the size of your business, how important steady pricing is versus getting the best deal, what you use the diesel for, and frankly how much time you have. Provided you’ve read the fine print, contracts will likely be less of a risk (and a headache!) than price hunting whenever you need to buy. That being said, super diligent wholesale purchasers may find that in the long run, they’re able to save more money by not signing a contract. And, some wholesale purchasers do a bit of both, purchasing diesel on a contract regularly and supplementing with diesel purchased on the spot without a contract as necessary.
How Much Should You Buy?
Diesel is measured both by gross and net gallons. The reason for these two different measurements is because like all liquids, the volume of diesel changes depending on temperature. At cooler temperatures, the same amount of diesel will occupy a smaller amount of space than at higher temperatures.
This difference matters a lot to both sellers and purchasers of diesel; vendors want to make sure that they aren’t giving away “free” diesel, and you want to get what you paid for. So, when diesel is dispensed at distribution points, the number of gallons (or gross amount) is recorded, and then the net amount is calculated based on temperature. Whether you’re seeing the gross or net price for the diesel then depends on whether it’s being sold in a warmer or cooler part of the country.
As far as actually determining how much diesel to purchase at once, a little planning goes a long way. You never want to be ordering diesel when you are out; desperation may mean potentially accepting a price that’s much higher than if you’d been able to wait a few more days or weeks. That being said, you also don’t want to have excess diesel sitting around for long periods of time, especially in less than ideal conditions. Know the storage life of your diesel and keep track of how much diesel you are going through, and then base the amount of diesel you are ordering off of those numbers.
How Do You Get Your Diesel?
The final step of purchasing diesel is of course setting up shipping and delivery. Remember: the farther away you are from your supplier, the more expensive your shipment will be. Not factoring shipping into your decision of which vendor to purchase from can be a costly mistake.
Before your diesel arrives, inspect your tanks to make sure you don’t have any leaks, and do regular maintenance on your tanks throughout the year. Even a little bit of water vapor in a tank can have a drastic impact and potentially even ruin your supply.
Final Pieces of Advice:
Purchasing diesel is a significant investment, and one that you should be careful with. Be wary of vendors who aren’t willing to be transparent with you or with prices that seem too good to be true; fraud certainly exists in the wholesale diesel market. Furthermore, never purchase red diesel fuel unless you have a license to use it; the cost of getting caught will outweigh any upfront cost-savings. Lastly, do your homework. Purchasing wholesale diesel is expensive, and in order to really make it worth it, you’re going to need to put in some extra work to understand the market and pricing.
Have further questions about wholesale diesel or interested in purchasing from Roady’s?
Give our wholesale diesel team a call at (866) 328-0612