Gasoline Price Inflated by Ethanol in Oil Boom: Energy Markets - Bloomberg

Article by Mario Parker - March 21, 2013

Even as the U.S. produces more oil than at any time since 1992, gasoline remains a dollar higher than the average for the past decade in part because of George W. Bush-era rules that attach a 38-digit Renewable Identification Number to every gallon of ethanol.

Gasoline prices at service stations have risen an average 12 percent this year even as benchmark West Texas Intermediate crude climbed 1 percent. Part of the reason is the 10-fold increase in the cost of credits that refiners from Valero Energy Corp. (VLO) to Marathon Petroleum Corp. (MPC) must buy to comply with the 2007 law designed to boost ethanol consumption.

Bush's mandate predated a boom in oil and gas production that has helped the U.S. meet 84 percent of its energy needs in the first 11 months of last year, government data show, the most since 1991. Since its passage in 2007, annual gasoline demand has dropped 6.3 percent, while U.S. output has soared 28 percent, making compliance by refiners more expensive and eclipsing any benefit from replacing hydrocarbon-based fuel.

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