Prices for diesel fuel tend to be fairly volatile over the course of any given year, but as the Russia-Ukraine war showed, they can spike significantly when there is a market disruption.

“We’re certainly well below what happened at the start of the Russia-Ukraine war two years ago when oil prices got up to about $135 a barrel,” said Gregg Ibendahl, a Kansas State University Extension farm management specialist.

Since then, oil prices have backed off more than he thought they would. But even so, he doesn’t believe traders fully priced in some of the negative consequences of the war. Oil prices were fairly stable in the $70 to $80 per barrel range last year, he said during a livestream webinar.

Diesel prices last year declined by 75 cents a gallon, then rose by about the same amount and declined again. The question is whether diesel prices will exhibit that same pattern this year, he said.

Disruptions possible

World supply is still a concern, especially if there are disruptions in Russia — the second-largest exporter of oil.

Current diesel prices hover just below $4 a gallon, reflecting the crude oil price of $70 to $80 a barrel.

There’s really not much information in the futures market on oil prices. Futures are just taking the oil price of the last several months and projecting it forward for the next couple of years, he said.

“I don’t think they’re really fully accounting for some of the risk factors that could be involved in a … worst-case situation in Russia, where their oil production was actually down last year,” he said.

At the start of the Russia-Ukraine war, oil traders probably overpriced the risk, he said. Since then, prices have decreased to pre-war levels.

Risk factor missing

“Traders really aren’t pricing much of a risk factor in at all here if they’re willing to price oil at really the same price that was pre-war,” he said.

The question is whether futures prices are too low.

“My personal opinion is this is really probably too low because there could be some bad situations where something would happen. And if that’s the case here, I don’t think they have fully incorporated that into their price,” he said.

He doesn’t see much possibility of oil prices going much below $70 a barrel, unless the world had another COVID outbreak and demand dropped.

“But to me, the upside risk is a lot greater than what the potential downside possibilities are,” he said.

Slow decline

His prediction over the next 12 months is the average diesel price will go down from $3.85 a gallon to maybe $3.30 or so, then rise again like it did last year.

Over the course of the year, he predicts the same slow decline in price as projected by the U.S. Energy Information Administration. But it all depends upon oil prices staying in the $70 per barrel range, he said.

If something happens where Russia can’t export the same amount of oil, there could be a big spike in prices, he said.