The good news: The dramatic price rise in crude oil since 2002 is about to end. The bad news: Energy costs remain high.
A slight downward trend, as well as predictions for relatively high prices, has little to do with hurricanes or rumors out of the Middle East, says Tom Tucker, president of John Stewart and Associates, in San Antonio, Texas.
China moves the market, Tucker said recently during the annual North American Grain Congress, a joint conference of the National Sorghum Producers and the National Association of Wheat Growers.
“China has doubled its oil imports in five years,” Tucker said, “and is responsible for one-third of the world's petroleum growth.”
The downward trend results from less consumption. “High prices cure high prices,” he said. He put 2025 estimates of U.S. oil imports at 60 percent versus an earlier projection of 68 percent.
Other factors influencing energy prices include OPEC production, estimated to rise at 1.6 percent instead of an earlier projection of 2.7 percent. Other global influences include Iraq and Iran.
Tucker said natural gas prices would trend with crude and will decline from the 2005 peak. “Natural gas prices will dip going into summer.” That summer decline is not as steep as it once was, however, since natural gas has replaced coal in many industrial uses. He expects a summer drop to about $7 and then a bounce to $10 with cold weather.
Fertilizer prices rose with natural gas. “Potassium and phosphorus also increased,” he said.
Diesel prices also will come down from the July 2005 peak but will remain relatively high.
Tucker said ethanol use will increase. “We have 100 ethanol plants in operation now and as many either planned, under construction or expanding,” he said. He said government estimates of U.S. ethanol consumption of 10 billion gallons by 2020 might be too conservative. “Our projections show more than 11 billion gallons used by 2015. That represents 500 million bushels of grain use.”
He said grain production now equals energy. “As an energy value, grain is under-priced.”
Ethanol use is projected to top out at 4 percent of U.S. consumption. Tucker said President Bush's references to alternative energy in the recent State of the Union Address were “exaggerated.”