Is radio frequency identification able to perform as wireless sensor technology, giving a reading if, for example, it is submerged in diesel fuel? I am considering deploying RFID for remote tank-level sensors.
RFID transponders are most definitely able to act as wireless sensors. Active RFID tags often have temperature loggers, moisture sensors, accelerometers or other sensors built into them so they can report on environmental conditions. There are also battery-assisted passive tags that have sensors. You would need some testing to ascertain whether these sensors would work in determining the level of diesel fuel within a tank.
One option might be to use passive ultrahigh-frequency (UHF) tags. Some liquids absorb RF signals, essentially preventing tags from receiving energy or transmitting it back. I have heard of companies that have experimented in placing passive UHF RFID tags every foot inside a large tank, and monitoring liquid levels based on which tags are unreadable. If the first four tags were unreadable but the next six could be interrogated, then there would be four feet of liquid within the tank. I don't know how much energy diesel fuel absorbs, so you would need to conduct some testing. Additionally, you would require tags that would not be destroyed by the diesel fuel.
—Mark Roberti, Founder and Editor, RFID Journal