March 8, 1999 | By: Aimee D. Heald
LEXINGTON, KY.

Producers who recently have filled their gas tanks have been shocked by the prices. Others are waiting to fill their tanks, hoping prices are peaking and will fall soon. Unfortunately prices probably will rise before they fall.

The rising price of oil also impacts the price of nitrogen fertilizer, which many Kentucky producers depend on to nurture a good crop.

"Nitrogen fertilizer prices can also be affected by the increase in oil prices because natural gas is a key component of nitrogen fertilizer production," Greg Ibendahl, ag economist for the University of Kentucky College of Agriculture. "Fortunately, nitrogen fertilizer prices have not increased nearly as much as fuel prices."

So far, nitrogen fertilizer is only up by three percent from February 1999. Low crop prices and reduced corn and wheat acres, along with some early-season weather problems, contributed to a five percent decline in fertilizer usage compared to last year.

"Apparently, supplies are adequate since current low crop prices discourage any increases in consumption." Ibendahl said. "However, we have probably not seen the low for nitrogen fertilizer prices this year."

Oil ministers from Mexico, Saudi Arabia, and Venezuela have talked about increasing oil production. Such comments in the past normally would cause prices to fall. Traders, however, basically have ignored these comments this time, because they believe OPEC will not put enough oil on the market to ease the tight supply anytime soon.

Oil prices have nearly tripled in the past year to top $32 per barrel. Traders say the market needs at least two million barrels more per day to cause the price to decline. The production increases suggested by OPEC only amount to 1.2 million barrels per day.

Ibendahl said some analysts are predicting gas prices may be anywhere from $2 to $2.50 a gallon by summer. Gasoline inventories are so low that any actions by refiners is not likely to help prices.

"The only thing likely to help fuel prices is either opening the strategic oil reserves or a bigger increase in production by OPEC," Ibendahl added. "However, any OPEC increase will take up to six weeks to reach the U.S."

Contact: 

 Greg Ibendahl 606-257-7616