It’s easy to take a seat on the sidelines and believe all of the things you read in the headlines about diesel fuel prices and gas prices going even higher. Of course those kinds of stories make news and help ratings. So, to answer the question in my own headline, ‘Are diesel fuel prices going up?’ – you betcha.
But let’s take a moment to look at the fundamentals of the oil market. Supply is good. Inventory levels are very good. Demand worldwide is a little soft right now with the crisis in Japan. So why are fuel prices going up? Why are we all paying so darn much for fueling our fleet and personal vehicles? Heck, my wife said to me the other day, “I was going to get premium gas because the car engine was making a knocking sound, but there was no way I was going to pay over $4.00 a gallon!” Instead she got what she normally does, regular, paid $3.65 and her new car is still knocking.
I believe personal and fleet fueling costs are going up because of FEAR! FEAR! FEAR! Everyone is scared of the unknown. What if all this turmoil continues in the Middle East? Yes, the situation in Middle East is a mess and as I just wrote in my column, it has been a mess for a long time and will probably continue to be a mess for the foreseeable future. What if the U.S. and global economies continue to grow and there is a greater demand for oil? Yes, let’s hope the economies improve. And yes, the world’s energy demands will continue to increase and so will demand for crude oil. Even with natural gas, nuclear, clean coal, solar and electricity we are dependant on crude oil as the biggest source of energy.
Well, what if? What if? What if? My whole life I’ve played the tiresome and very complex game of asking myself “What if?” Lately, I have tried to stop, but I can’t just yet. How about this…what if we all just said ‘NO!’ to ‘what ifs?’ Just for a moment, let’s deal with the real facts on the table. Get rid of fear and not speculate about what might happen tomorrow. Truth is we have a good supply and we have good inventory, therefore diesel fuel prices should be $3.30 a gallon, gas prices should be $3.10 a gallon and crude oil should be around $70-$80 a barrel.
Let’s look at some more facts. Do you know who makes more crude oil than anyone else in the world? Saudi Arabia. How much? Just under 20% of the world oil. Do you know what the Saudis believe the price of crude oil should be? $70-$80 a barrel. Do you know who is the second largest crude oil producer? Oh Canada we love you! The Canadians are pumping out 13% of the world oil. Add the two together for 33% or one third of the world oil. Iraq is number four on the list with 9% of the world oil, followed by Kuwait at number five. Put them all together and that is almost 50% of the world oil right there.
Oil is the lifeblood for most of the oil producing countries that I did not mention here who make up the other 50% of world oil. It’s not in their best interest to cut off supply or price themselves out of the marketplace. That would be like shooting themselves in the foot.
However, it is unfortunate that fear is the reality right now. And even though I’m thinking prices are going to come down by the end of the month, followed by another drop in May, that won’t be the situation for too long. The supply will continue to flow and add to our already good inventories. There’s even a little surplus out there right now. Americans don’t like paying over $3.50 a gallon, and we will cut back our driving and subsequent spending on gas. So with my math, I’m coming up with $108 a barrel; $80 for fuel and $28 for fear. I think that the cost per barrel will dip below $90, and then go back up to $100 by the end of the year. However, after that, we might not see it come back off of that number.
So be prepared to reach deeper in your pocket to pay at the pump. No one likes the sound of $4 a gallon for gas, especially my wife, but $4 just may be the new regular number in 2012.