It would be an understatement to say energy prices have been volatile the past few months. Coming out of winter, markets rallied to an all-time high of $57 per barrel crude oil, with other energy prices following. Although markets settled down a bit by spring, prices are rallying again, with crude currently approaching new highs of $60 per barrel. Why are prices at such high levels? There is no simple answer.

Last year's price rally was driven by geopolitical events in oil-producing nations such as Nigeria, Venezuela, Saudi Arabia and Iraq, along with the exploding economy in China. This year the rally is more the result of technical analysis, speculative buying by commodity fund traders and continuing fears about supply and limited refining capacity.

So far this year, the fundamentals of inventory-typically a good indicator of price levels-have been at good levels. Compared to last year, crude is currently about 8 percent higher, gasoline is 4 percent higher and diesel fuel inventories are about the same. However, another important market fundamental-demand-is also higher than last year, especially for diesel fuel, currently running almost 7 percent higher than last year. After a slower than expected rate of growth in the first quarter, the U.S. economy expanded by about 3.5 percent, and any growth in the economy means greater energy demand.

Refinery capacity and our dependence on imports are key concerns of energy market analysts. The last new refinery was built in the U.S. in 1976. In the past 20 years, the number of refineries has dropped from 223 to 148, although actual operating capacity is greater because of expansion and technology. U.S. refineries now consistently operate at more than 90 percent utilization, compared to about 78 percent in 1985, leaving little room for additional volume needed to satisfy the strong demand that is predicted.

Middle Eastern oil, where most new production comes from, is typically heavy, sour crude and is not the most desirable when it comes to optimizing production of refined products. Refineries have the greatest production rates using lighter, sweeter crude oils that come from domestic sources or other parts of the world.

None of us are strangers to the plaguing questions: Why are gasoline prices so high? How high will they get? When will they go down? But the answers are harder to come by because many factors influence price. Since we live in an era that puts a premium on energy products due to their value in the world economy, prices are likely to stay higher than we're accustomed to. This prompts another question: Is there any relief in sight?

The answer is yes. High costs for petroleum-based products have increased focus on development of alternative energy sources. "Homegrown" energy, such as ethanol and biodiesel, are both economically beneficial and environmentally favorable.

The U.S. Senate recently approved a national mandate that will double the amount of ethanol required for blending with gasoline to 8 million gallons per year by 2012, more than twice the amount currently used. More legislative action is required before the mandate becomes effective, but it could mean additional domestically produced energy for America. Demand for biodiesel is currently far greater than limited production facilities can supply. New plants slated to open in Minnesota should improve this situation within the next couple months and currently we are very close in Missouri to having a local source of production that may be available within 18 to 24 months. The addition of bio fuels may not bring a reduction in the cost of energy, but at least it will be a domestically produced product to offset oil imports. 

Answers aren't simple and solutions won't come overnight. Our best weapons against high fuel prices are continued focus on the issues and determination to make the solutions work.