Which Way Are Energy Prices Headed?  

Greetings! It was a great weekend here in Chicago that felt more like September than July. And while I always enjoy the fall weather, I’m not quite ready to give up the sun and heat of summer just yet.

This week, I'm going to share more insights from the Wyffels Hybrids Corn Strategies conference.

Jim Wiesemeyer, senior VP, Informa Economics, predicts that by 2016, energy prices in the US are going to fall by 20 to 30 per cent.

He said mega changes are underway in energy that will dramatically impact the business of agriculture - including more output, greater fuel efficiency and alternative energy.

“I believe you’re going to have $65 to $75 a barrel, and we are a little over $100 for Brent Crude right now,” he said. "Regular gas is going to go down to $3/gallon and that’s like an income tax cut.”

Domestic oil use is down 11 per cent from its peak in 2005, and output has gone up 30 per cent since 2008. The impact of this is equal to 4 million barrels of new oil supplies a day. From a corn perspective, that's about a two billion bushel carryover.

Foreign demand for oil is easing, so not only do you have domestic US and world production going up, but US and world consumption is going down, including China.

Around the world, fuel subsidies are shrinking and environmental regulations are rising.

• Europe and Japan: there are weak auto sales, rising urbanization and weak economies.
• Canada: oil sands reserves are on the rise.
• Africa and South America: discovered tremendous offshore deposits that will provide trillions of dollars in revenue.
• Iraq and Russia: oil production is booming again.

All this translates to big impacts on other sectors. Biofuels will become less competitive, as gas and diesel become cheaper relative to ethanol and biodiesel. Natural gas usage is going to surge and go to the lowest price. Abundant supplies will displace or temper oil use across many industries.

US and China truck fleets are expected to use more liquid natural gas and less diesel. Saudi Arabia is discovering and producing more gas wells so they can free up more for export.

In the future, he expects natural gas to be a key fuel source for farm equipment.

“They’re on the drawing boards and once they get that power figured out, you watch this mega trend for the decades ahead for farm equipment, it’s important,” he said.

This is just bits from my coverage of Jim’s comments on energy, so click here to read the full story, including more on the Renewable Fuels Standard and trade policy.

Have a great week!