Purdue economist: Summer fuel prices will remain stable if …

WEST LAFAYETTE, Ind. — Diesel fuel and gasoline prices this summer could hold relatively steady provided an already-tense Middle East doesn’t flare up and nothing else happens to disrupt supplies, a Purdue University agricultural economist says.

As long as market conditions remain basically as they are now, gasoline prices likely will hover between the $3.50- to $4-per-gallon mark in the Midwest, with diesel prices about 25 cents higher, Wally Tyner said. That could be welcome news to U.S. farmers who will use diesel- and gasoline-powered equipment to harvest millions of acres of crops this summer and fall.

Factors

But Tyner cautions that global instability and disruptions in supply could force prices upward. As always, the political situation in the Middle East and U.S. relations with Iran will play a large part in what farmers will pay for diesel fuel and gasoline.

“Any disturbance in the Middle East or heightening of tensions with Iran could move crude oil up,” Tyner said. “And that would send fuel prices higher.”

Supply also can be interrupted by bad weather, such as hurricanes or tsunamis, or refinery or pipeline outages — all of which can occur domestically or abroad. When supply interruptions do happen, they often temporarily drive prices up until the disruption subsides, Tyner said.

On the other hand, sluggish economic growth, an increase in crude oil production and higher-than-normal crude oil stocks could bring prices down. Recent developments in the economic crisis in Greece and an apparent slowdown in China’s economy could be important to summer’s fuel prices.

“Economic growth or lack thereof is a major determinant of demand for fuel,” Tyner said. “If growth is slower, fuel prices will be lower. Growth has slowed in China and in Europe. If that slowdown continues, it would put downward pressure on crude oil and fuel prices.”

Potential situation

Crude oil production worldwide has increased recently beyond global demand, a situation that would drive gas prices down. As production increases, crude oil stocks build to above-normal levels, which also could cause oil prices and, therefore, fuel prices, to decrease.

If none of these situations occur, prices will remain steady, Tyner said. And it could provide an opportunity for farmers to forward contract their fall fuel needs to lock in lower prices.

“While we cannot say how any of these factors will play out in the months to come, they are the key things to watch to determine where fuel prices will go,” Tyner said. “If these factors remain pretty much as at present, fuel prices will do the same.”

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