Farm Progress

Lower fuel prices could be a distant dream.Last month USA Today reported U.S. pump prices on average were down 18 cents over the preceding four weeks and were expected to fall another 20 cents a gallon by June.Sound reasoning for lower prices. 

Logan Hawkes, Contributing Writer

May 21, 2013

5 Min Read
<p> In early August, in near 100-degree heat, Larry Lambert and his grandson, Noah, cut hay near Weston, north of Dallas.</p>

If you are inwardly rejoicing over news headlines recently that predicted fuel prices could drop by as much as 20 cents by Memorial Day, hold on to your hat because you may be climbing aboard a rollercoaster ride of surprises.

As recent as Monday, May 20, headlines from respectable newspapers, magazines and major Internet news sites have been touting the probability that pump prices across America—possibly California excepted—could not only be stabilizing for the summer months but could actually be falling as a result of increased U.S. fuel production.

Last month USA Today reported U.S. pump prices on average were down 18 cents over the preceding four weeks and were expected to fall another 20 cents a gallon by June. The Washington Business Journal reported at the beginning of May the American Automobile Association (AAA) predicted the price of gas could continue to fall throughout the summer. Purdue Agriculture, for long a stable news source for the farm and ranch industry, reported just this week that drivers should enjoy a summer driving season without unusually high gasoline prices that would "probably be lower than they were last summer."

The Purdue article offered some sound reasoning for lower prices. For one, increased production by non-Organization of Petroleum Exporting Countries has caused production cutbacks by OPEC—particularly Saudi Arabia, which is reporting spare capacity—and has resulted in fuel production that is growing faster than consumption for the first time in several years.

Add to that North America's oil boom. New technology that allows oil production from shale rock and bituminous sands has boosted U.S. and Canadian oil production enormously over the last year. In fact, the U.S. Department of the Interior recently estimated a total of 7.4 billion barrels of oil could be extracted from the Dakotas and Montana; another 1.4 million barrels a day will soon be produced from the growing Eagle Ford shale production site in South Texas. Also millions of gallons of new oil will be produced in Canada.

The aforementioned news sources are not the only ones to report the probability of lower fuel prices. Overall, the news, it would seem, supports the idea that fuel prices could remain stable or even fall slightly in the coming months. Joining Purdue, AAA and USA Today are reliable news outlets including the Associated Press, National Public Radio, CNBC and others.

To be honest, when the idea for this Farm Press report surfaced early last week, it seemed, for all the world, it would focus on the possibility of how fall harvest costs could be lower this year as a result of stable energy prices. That was until this week when reports started trickling in about pump price increases from the East Coast through the Midwest, Southeast and Southwest. In fact, a check while still in the process of assembling this report indicates escalating fuel prices may now prove to be a trend not only until Memorial Day weekend, but could continue well into the summer months.

From good reports to bad

So much for the idea that this report would be a positive one for the agricultural industry.

So what happened?

According to analyst Tom Kloza at, an unexpected "perfect storm" of events erased optimism for stable fuel prices and caused an estimated 16 percent rise in pump prices in the Midwest, just since late last week.

Kloza blames the unexpected turn around not on oil production or even on escalating demand, but on refinery operations. While crude production has reached it highest level in the U.S. since the early 1990s, the amount processed this year has dropped to 1990 levels. The long and short of it, according to Kloza, is that many refineries had to retool refinery operations to more effectively process free-flowing Canadian crude and some oil derived from other sources of shale rock and sand.

On top of that, a few major refineries, including units in Wyoming, Illinois and Indiana, experienced unexpected mechanical or technical shut downs, resulting in decreased fuel production. That combination, he speculates, created supplier panic and an uptick in wholesale and retail pump prices.

In addition, fear levels naturally jump every year as the annual hurricane season approaches, set to begin June 1. Extreme tropical weather can easily cause a drop in offshore oil production and a strong hurricane can damage coastal refineries.

If a silver lining exists in this “bad story-that-started-out-as-a-good-story” it could be this: Energy economists agree that as retooling of refineries are completed in the days and weeks ahead and if tropical storms and hurricanes are not troublesome early in the storm season, pump prices could once again stabilize by early July and could fall slowly through the harvest season if production remains high.

In fact, for the first time in more years than many can remember, a return to gas price wars was experienced last month along the Texas coast as a major grocery chain that sells gas and a Wal-Mart store next door (in Corpus Christi, Texas) engaged in a gas war that saw the price for a gallon of regular unleaded fall to $2.77. Even this week the two warring retailers are selling unleaded fuel below $3 a gallon. While that won't last long with gas prices jumping this week nationwide, it could be promise of things to come if production remains high, storms fail to threaten, and escalating prices give way to falling prices again.

It wouldn't hurt to keep our fingers crossed either.


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About the Author(s)

Logan Hawkes

Contributing Writer, Lost Planet

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