Getting more to the root of the issue, Verleger says oil prices would be as much as $40 a barrel higher than they are now if the ethanol wasn't blended in and notes that US oil use is reduced by about the amount produced each year in Ecuador because of the ethanol requirement. AAA pegs the national average at about $3.50 a gallon and the price for a barrel is around $100-$110.
Of course, Verleger merely provides a yin to the yang representing the arguments against boosting ethanol in the US fuel blends. Petroleum lobbyists have been hammering home an argument that gasoline with higher ethanol blends may damage older cars and motorcycles while pulling from the country's food supply. The American Petroleum Institute (API) went as far as trying to ban sales of gasoline blended with 15 percent ethanol (E15). While that effort was rejected by the US Supreme Court in June, some folks have said oil companies are still making it difficult for service stations to get access to E15. As of early this month, the RFA said there were only 30 stations across the US selling E15. Check out the RFA's press release below.
September 23, 2013
(September 23, 2013) WASHINGTON - Consumers are saving $0.50-1.50 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."