"Forecasting anything beyond 90 days makes witchcraft look like some sort of exact science."

That was the caveat of Tom Kloza, chief oil analyst for the Oil Price Information Service, when we asked him about his oil and diesel price predictions
for 2010. However, he did have some general thoughts about where prices will go - and about how the factors that drive the prices of oil and diesel fuel have changed.

"We may look back on the early part of this decade and remember when oil wasn't an asset class unto its own," Kloza says. "Crude pricing isn't so much a reflection of what it costs to bring it out of the ground and sell it anymore. It's more of a proxy on the optimism on the economy three to six months from now."

Therefore, the economy is going to be key to where prices go, especially for crude oil and transportation diesel, Kloza says. "Gasoline kind of has its own sort of solar system and trades based on specifications and consumer metrics. In the last few years, it's become clear that crude oil and diesel really trade on the macro economic outlook or present situation. Diesel was the product that moved highest when the global and the U.S. economy were going gangbusters, and was the product that got bitch slapped the most when the market came off. I think that's going to continue to be the way we have to look at it."

So the price of oil and diesel is tied, not to demand and consumption per se, but to traders' optimism or pessimism about where the demand for the product is going. And demand will go up in coming years. Emerging economies such as China and India, which will be driving much of the global economic growth in the next five years, will need diesel.

One thing Kloza says you can expect is continued volatility. "If you'd ask me, what do you expect next year, will oil prices be $50 a barrel or $100 a barrel, I'd say, yes."

The people who trade oil futures "are like those undersea organisms that grow in the volcanic vents - they thrive on that froth," he says.

The Department of Energy's Energy Information Administration predicted Sept. 9 that diesel will average $2.88 per gallon in 2010. That's a reasonable average, Kloza said - but he emphasized that it's an average.

"What it doesn't tell you is that the price is not going to be stable around those numbers. We may see something on the order of diesel prices varying from just over $2 to maybe around $3, $3.25 or so.

Nevertheless, Kloza stresses, he does not believe we are looking at a return to the numbers we saw in the first six months of 2008.

"There's too much oil out there, too much refining capacity, and it historically takes too long to bounce back from the kind of demand destruction that occurred after the financial meltdown," he explains.

"It would take something of untoward proportions, like discovering ingesting diesel would cure Alzheimer's, or a major geopolitical event. $150 crude has to be viewed like the 5000 point NASDAQ. These markets are prone to mini bubbles, but that's a maxi bubble I don't think we're going to see again anytime soon. Diesel prices of close to $5? We're not going to go into that neighborhood."

From the October 2009 issue of Heavy Duty Trucking.