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New analysis: Ethanol cutting crude oil, gasoline prices

By Renewable Fuels Association | September 24, 2013

Consumers are saving 50 cents to $1.50 per gallon on gasoline as a result of increased ethanol production under the renewable fuel standard (RFS), according to a new analysis by renowned energy economist Philip K. Verleger, who served as an advisor on energy issues to both the Ford and Carter administrations.

“The implication for world consumers is clear… [T]he US renewable fuels program has cut annual consumer expenditures in 2013 between $700 billion and $2.6 trillion,” writes Verleger in a short commentary available on pkverlegerllc.com

“This translates to consumers paying between $0.50 and $1.50 per gallon less for gasoline.” The commentary summarizes a more detailed analysis that was included in Verleger’s August Petroleum Economics Monthly newsletter.

Crude oil prices would be between $15-$40 per barrel higher today without the substantial volumes of ethanol that have been added to petroleum inventories since enactment of the RFS. According to the commentary, the RFS today has added “…the equivalent of Ecuador’s crude oil output to the world market at a time of extreme tightness.”

“Had Congress not raised the renewable fuels requirement, commercial crude oil inventories at the end of August would have dropped to 5.2 million barrels, a level two hundred million barrels lower than at any time since 1990,” Verleger writes. “The lower stocks would almost certainly have pushed prices higher. Crude oil today might easily sell at prices as high as or higher than in 2008. Preliminary econometric tests suggest the price at the end of August would have been $150 per barrel.”

The commentary is available here. Platts “The Barrel” blog first reported on Verleger’s analysis here.

 

 

 

8 Responses

  1. GregS

    2013-09-25

    1

    What a load of crap! The price of crude is fixed by OPEC at around $100 regardless of what the ethanol industry is doing.

  2. C Langer

    2013-09-25

    2

    Go to fueleconomy.gov and compare cost to operate flex on E85 verses gas shows it cost over 20% more to use E85. I have yet seen any body explain why this. If its saving us that amount remove the mandates the choice should be simple.

  3. Mickey Shay

    2013-10-03

    3

    CLanger, fueleconomy.gov has no real mileage factors in its MPG numbers. They simply do the math off of BTU amounts not real road numbers. They take 66% of gas MPG to get E85 MPG. My fathers flex fuel suburban gets the same MPG with E85 as gasoline and better mpg than gas with E30.

  4. GregS

    2013-10-10

    4

    A more balanced view showing that ethanol does not reduce the price of gasoline substantially. http://scienceblog.com/67200/study-ethanol-not-a-major-factor-in-reducing-gas-prices/

  5. MS22

    2013-10-12

    5

    Factoring in the savings due to not importing the oil replaced across oceans and borders, its transportation across country to the nearest refiner, then transportation from the refinery to stations, and not having to pay the transportation and refining fees and salaries of its movement globally it is a substantial amount, GregS. $.50-$1.50 less depending on where in the country.

  6. GregS

    2013-10-19

    6

    Current price of ethanol is $1.81 versus $2.67 for gasoline, so you're looking at an 86 cent discount per gallon. With E10 you're only using 10% ethanol so savings of only 8.6 cents per gallon.

  7. GregS

    2013-10-21

    7

    MS22: The flaw in your argument is that we are still importing most of that oil that ethanol "replaced", now we just refine it and export it.

  8. MS22

    2013-10-23

    8

    So if we are refining and exporting it instead of sending it to our pumps, why would that cost be added to pump prices? It isn't a flaw.

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