Farmers Should be Able to Rely on Continuing Lower Fuel Costs for Coming Growing Season

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Published on January 22 2016 9:16 am
Last Updated on January 22 2016 9:16 am
Written by Greg Sapp

Farmers looking to reduce their input costs due to tighter margins should be able to pencil in lower fuel costs for the upcoming season.

Crude oil prices continue to trend lower and last week slipped below the $30 mark in the U.S. for the first time in 12 years. Overall, oil prices have collapsed about 70 percent since mid-2014.

“When you look at the (oil price) chart, it’s just one big slide,” said Jackie McKinnis, GROWMARK energy analyst, who doesn’t look for a major reversal in the market any time soon. “I don’t see any (price) recovery in our future for gasoline and diesel,” she noted. “I think we’re going to stay pretty darn low.”

The Energy Information Administration (EIA) projects fuel prices this year could dip to an average of $2.03 per gallon for regular gas (down 40 cents from 2015) and $2.29 for diesel (down 42 cents from last year). EIA projects oil prices this year could bottom at an average of $38.54 per barrel, compared to $48.67 last year, before creeping back to $47 in 2017. This compares to the average oil price of $93.17 less than two years ago.

“It’s great for consumers, obviously,” McKinnis said of the fuel price savings. “But if the price slips lower, we’ll see default and bankruptcies increase (in the energy sector). There’s a lot of fear out there.”

So, what’s driving down oil and fuel prices? World oil production currently outpaces demand by about 2 million barrels per day.

“We have a lot of gas and a lot of diesel,” McKinnis said. “Unless production comes down, the price has to come down. There’s really no other relief valve.”

Farmers should be able to reduce their fuel costs this spring without having to get creative. McKinnis recommends contracting up to a quarter of fuel needs for protection against basis moves, but otherwise simply buying most supply off the rack this spring and fall. McKinnis didn’t predict where the market could bottom, but some analysts believe oil prices could trend lower, possibly even below $20.