What a difference a year makes. With apologies to all who suffered through back-to-back hurricanes along the Gulf Coast last August and September, motorists and farmers have a lot more to smile about when they pull up to the pump this fall than they did this time a year ago.

Gasoline prices have dropped about $1 a gallon within the last month and diesel fuel hasn't been far behind. While some political wags have tried to attribute the decline to the recent mid-term elections, there's little doubt the outlook for energy supplies has improved considerably since September 2005.

Now the question becomes whether the falling prices are an aberration or a sign of better days ahead for motorists and agriculture producers. And the answer: It all depends, says Steven L. Klose, an Extension specialist with Texas A&M University in College Station.

“Crude oil futures closed below $60 a barrel last Friday (Sept. 22) for the first time in six months,” said Klose, a speaker at the Southern Region Agricultural Outlook Conference in Atlanta. “But there is still a great deal of instability and uncertainty that could bring renewed volatility in the energy markets.”

Klose said farmers could be looking at diesel prices below $2 a gallon and improved natural gas and fertilizer prices next season. Great news compared to the prices we've seen in the last 12 months, but still high when you consider where we were 2-3 years ago. And that's assuming no major disruptions in the flow of oil to U.S. refineries or natural gas facilities.

Another storm system could send prices spiraling — the United States still has a ways to go in this hurricane season. But that's not all that's lurking in the wings on the energy front.

First off, there's the situation in Iran, which controls the flow of 20 percent of the world's oil supply. Iran's refusal to stand down its nuclear program could keep the world on the edge of its seat for months to come.

Then there's Iraq, which supposedly is increasing its crude oil production when insurgents aren't blowing up pipelines and refineries. And Venezuela, whose president, Hugo Chavez, seems to be bent on becoming the biggest loose cannon on the world political stage. And Chinese demand, which shows no signs of being satiated anytime soon.

On the other hand, Chevron recently announced it had successfully recovered oil from its Jack 2 field in the Gulf of Mexico. “Some analysts say this discovery could increase U.S. oil reserves by 50 percent. If anything good could come out of $70-per-barrel oil, it's oil company investment in exploration and finding new reserves,” said Klose, referring to the difficulty of pumping the newly discovered oil from nearly two miles down in the Gulf.

Natural gas prices have also taken a turn for the better for consumers in recent weeks. Since the end of August nearby natural gas futures on the New York Mercantile Exchange have fallen from more than $7 per million Btus to $4.20 million Btus on Sept. 28.

NYMEX June 2007 natural gas futures were trading about $1.50 per million Btus lower at the end of September ($7 per million Btus) than they were at the end of August. Natural gas industrial retail prices peaked at $12 per million Btus last fall.

“If June 2007 futures prove to be on target, that would get us back to the summer of 2005 — before the hurricanes — around $7,” said Klose. “On the other hand, the Farmers Almanac is predicting a severe winter in 2005-06 so we could see prices move back up in the $8 range.”

The outlook for refined products is also improving as indicated by motorists' experience at the pump.

“We've seen a gradual buildup since the hurricanes last fall so that refineries are now operating at 93.4 percent of capacity,” says Klose. “Supplies/inventories are up 6 percent to 11 percent over a year ago.

There's also been an ease in demand. “I don't know if it's the general economy or a decrease in retail, but trucking volume has been down in recent months,” he said. “The airlines have also cut back a little.

“I'm sure you've also heard the political explanation — that the oil companies have been reducing prices to help their Republican friends in the upcoming mid-term elections,” he said, smiling.

Diesel trending down

Diesel and heating oil prices have also been trending down, with NYMEX futures sliding from a little more than $2 per gallon in July to $1.70 per gallon at the end of September. June 2007 NYMEX futures are pointing at $1.90 per gallon next summer.

Diesel retail prices have declined from a peak above $3 following the hurricanes to about $2.40 per gallon in recent weeks. “If you take about 40 cents off that for on-farm use, that gives you a price of about $2 per gallon to the farmer,” said Klose.