Inflexible ethanol costs stopping further decrease in gas prices
A report in Bloomberg says that ethanol prices have only come down one-third as much as the price of gas because the price of corn has been going up for the past five months. That has led to ethanol - historically about 20 cents less per gallon than gas - becoming more expensive than gas. And that has caused refiners to use less ethanol for blending, instead purchasing credits called Renewable Identification Numbers to satisfy government requirements for ethanol use.
On one side, corn, ethanol and RIN credits are stuck at relatively elevated pricing, while on the other side, refiners are said to be operating "at a seasonal record" pace, and obligated to include ethanol in their blends. Spending the extra money for the ethanol blendstock has slowed the downward price pressure on retail gas; the American Automobile Association said prices at the pump were down 6.6 cents in the last seven days, which is the smallest decline in a month.
Interestingly, this is the other side of the coin when it comes to ethanol and RINs: in 2013, when gas prices were up up and away, oil industry executives got even more vocal about how EPA biofuel mandates and the RIN market were pushing the cost of gas up, and the supposed increase in ethanol use wasn't happening. Now it appears the same situation is keeping the cost of gas from going down.
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