Climbing fuel prices trigger alarm

Increasing demand, limits on production weigh on farmers

By WES SANDER

Capital Press

Farmers and truckers are bracing for a spring growing season with diesel prices in the $4-per-gallon range.

Fears persist of higher prices in coming months, as global demand steadily expands, unrest builds in oil-producing nations and domestic policy favors renewable energy over oil drilling.

Manuel Cunha, president of Nisei Farmers League in California, said growers in the past few days have been telling him that fuel prices are their top immediate concern. The industry fears diesel could soon rise to $5 a gallon, he said.

"These prices are really going to cause havoc for the farm industry," Manuel said. "This is going to drive us even deeper into the recession."

This week the American Automobile Association put the national average diesel price at $3.74 a gallon, well above the $2.87 it cost a year ago. Gasoline was at $3.39, up from $2.70 a year ago.

AAA put Oregon's average on-road diesel price at $3.86 per gallon on the same day. The average was $3.91 in Washington, $3.82 in Idaho and $4.11 in California.

Some observers, including the conservative Heritage Foundation, argue that President Barack Obama's energy policy began boosting pump prices well before current Mideast tensions. That includes policies to limit production permitting for both land-based and offshore drilling.

Drilling in the Gulf -- a major source of U.S. production -- has been slow to restart. The first permit for a deepwater well was issued just this week.

"This president has got to get his act together," Cunha said. "We have to do more drilling in the U.S. and more drilling offshore -- with some restrictions, but without making it so difficult."

The White House did not return calls for comment.

Interior Secretary Ken Salazar dismissed the notion that changes in oil production in the U.S. have increased the price of oil.

"What we do here in terms of production is not going to affect the price of oil, which is set on the world market," Salazar told a Senate energy panel examining his department's budget.

John Felmy, chief economist with the industry group American Petroleum Institute, agrees that federal policy is exacerbating the situation.

"Clearly the administration has made decisions that have restricted supply," Felmy said.

The ongoing spike is mostly attributable to two other factors, Felmy said. One is spiking worldwide demand, recently pushed to record highs by developing nations like China and India. That includes a spike in domestic demand for diesel, indicating an increase in goods movement that might be fed by consumers' online shopping habits.

The other factor is Mideast instability, Felmy said. That includes unrest in Libya, where violence between political protesters and the regime of Moammar Gadhafi has curtailed most of the country's output.

While Libya's 1.5 million barrels per day constitutes a small portion of global production, its disruption -- in addition to unrest in other Middle East nations -- is still boosting prices on futures markets, Felmy said.

Trading on March 2 pushed prices for U.S. light sweet crude above $100 a barrel for the first time in two years. News reports cited Mideast unrest as the cause.

"In the short run, it's what the buyers and sellers think is going to happen," Felmy said. "There is no kind of reality, because the data doesn't exist."

To help mitigate impacts, a producer with large-enough fuel needs might find it worthwhile to make advance purchases, Felmy said.

"You can try to hedge your purchase," he said. "And you can do everything you can to reduce fuel usage."

But farmers have been trying to boost efficiencies for some time, said Cunha of Nisei Farmers. Several years ago, a group of producers and oil distributors attempted to build a tank in the southern San Joaquin Valley that could store fuel purchased early at lower prices, he said.

The deal collapsed over regulatory problems, and farmers have since focused on trying to keep consumption low, Cunha said.

Universities are running workshops on conservation tillage, which involves reducing passes over a field. Manufacturers are offering products to help, include tractor attachments that perform several functions simultaneously. But such implements are expensive, and tilling practices are more effective on some crops than others, Cunha said.

"We're always looking at trying to reduce passes," he said. "But you can do so much, and that's it."

The Associated Press contributed to this report.