As reported in Transport Topics: “The Department of Energy lowered its projected diesel average for this year by 9 cents, to $3.89 a gallon, and by 14 cents next year, to $3.93. The projected decline follows two big boosts — an 18-cent hike in its forecast last month to nearly $4 a gallon, and a 38-cent increase the month before that.”

Right now, diesel and gas are running much higher than the price of crude would suggest. Until last week, gas and diesel futures had been propped up mainly by fears that Mississippi River flooding would impact supply.

Energy companies now say supply fears are unfounded, and there is enough capacity in the system to make up for any production slowdowns in selected factories. The price of refined products traditionally lags the price of crude by a notable margin on a decline, so let’s assume diesel and gas will edge closer to their traditional relationship with the price of crude over the next few weeks.

Which brings us to the crux of the matter. No one really has a firm handle on what will happen to oil prices in the next year or two. Competing economic fundamentals are the reason for this.

For example, there are two main reasons why the price of crude could be expected to increase. First, growth of developing nations and the continued economic recovery suggest higher demand. Second, in the long term, it should become more expensive to extract oil from the Earth as easily-obtainable sources diminish.

On the other hand, there are two factors that counteract these assumptions. First, the Fed is set to phase out QE2 next month. The end result should be a strengthened dollar with increased purchasing power over crude. The removal of this stimulus could also result in slower general economic growth, which usually means lower oil prices. Second, high fuel prices are themselves a limiting factor on oil demand. Americans are currently driving less now than we did in the spring of 2009, during the worst of the recession.

Add to all this potential random factors such as (and I’m reaching a little here, but you never know) an increase in the Strategic Petroleum Reserves, more permissive drilling regulations, favorable or unfavorable resolution of the turmoil in the Middle East, or another natural disaster (or three) and the picture becomes further muddled.

I doubt anyone would disagree that the overall long-term trend will be upwards. But over the next year or two? There’s a reason they call it “speculation.”