Higher Crude Builds Case For More Ethanol

  • Friday, 20 June 2014 00:00

With the EPA's decision on 2014's Renewable Volume Obligations (RVO) for ethanol production expected to be announced in the near future, the agency may want to take a closer look at current crude oil prices which have been trending upwards.

A strong basis for the Renewable Fuel Standard, which was enacted in 2005 and expanded under the Energy Independence Security Act (EISA) in 2007 was to wean America off foreign oil.

But as a the turmoil in Iraq prolongs, crude oil prices have escalated. WTI crude has been over $106 per barrel which has translated to higher prices at the pump. Reformulated blendstock for oxygenated blending (RBOB) gasoline is currently trading $1.12 above ethanol.

All of us have certainly noticed the uptick in pump prices this week and if sectarian clashes in Iraq don't magically disappear next week, chances are we are going to be facing similar pump prices in the coming weeks. Flex-fuel owners, on the other hand, may have already noticed that E85's discount to regular E10 is hovering around 90 cents a gallon.

By the way, if it weren't for the fact that regular unleaded fuel contains 10% ethanol, the price of gas at the pump may be 16 cents higher per gallon.

Some may wonder why we're paying so much for gas when domestic production has been increasing. In fact, the Star Tribune reported this week that crude oil production from North Dakota has now topped a million barrels a day. The truth, however, is that crude oil is a globally traded commodity. If traders believe the global supply of oil will be adversely affected, it doesn't matter if production in the United States is at an all time high.

The EPA needs to consider the fact that oil prices will be constantly affected by turmoil in volatile parts of the world like the Middle East. Ethanol, on the other hand, remains the cheapest and cleanest alternative. If E15 was more widely available, 80 percent of car owners would be saving at least 24 cents a gallon at the pump.