Regionnus Rattis
Expert
I’ve been scratching my head lately trying to figure the disconnect between crude oil at $ 91 -$ 93/BBL and gasoline at about $ 3.60/gallon and thinking refiners must be printing money since at that cost of crude oil, gasoline should be about $ 3.10/gallon.
I shouldn’t have been critical of refiners and looked toward much more likely protagonist. It should be noted (if you may have forgotten) but all gasoline in the U.S. contains a blend of up to 10% ethanol (alcohol from corn). That was an “’In your eye OPEC” gift bestowed on us by Congress to decrease our dependence on foreign oil. I never was sure how that was supposed to work since it takes more energy to produce ethanol than the ethanol produces when burned, but no point in wallowing in the details.
Congress in their infinite wisdom did not set the mandated ethanol usage to refiners at a fixed level, or so much per gallon but allocated an aggregate level of ethanol across the refining industry which increases over time. Why does the required total ethanol usage increase over time? To keep our pedal to the metal, ethanol wise, and keep in step with increasing gasoline demand. But gasoline demand is decreasing. Oops L.
Automobile manufacturers only allow for blend of up to 10% ethanol since the alcohol is corrosive and attacks moisture both of which over time degrade the engine and... wear it out faster. So with increasing requirements for total ethanol usage, a limit of a 10% blend, and decreasing demand for gasoline, what’s a refiner to do?
Introduce the RIN. EPA’s own Renewable Identification Number. If you can’t blend enough ethanol you can buy credits to allow you to do so. Yep, you got it, it’s kind of just like a REC (Renewable Energy Credit). To make it convenient for everyone one, they can be traded. Guess what? Introduce Enterprising Hedge Funds who saw the storm clouds gathering and scarfed up all the RINs. RINs that in January were trading for a few pennies traded for over a dollar earlier this month.
So there you have it. Gasoline is expensive in part because of the ethanol we are using and because of the ethanol we aren’t using. So why doesn’t Congress just roll back the aggregate ethanol requirements? Introduce the Farm Lobby.
The more things change, the more they stay the same. Thank You Congress.
I shouldn’t have been critical of refiners and looked toward much more likely protagonist. It should be noted (if you may have forgotten) but all gasoline in the U.S. contains a blend of up to 10% ethanol (alcohol from corn). That was an “’In your eye OPEC” gift bestowed on us by Congress to decrease our dependence on foreign oil. I never was sure how that was supposed to work since it takes more energy to produce ethanol than the ethanol produces when burned, but no point in wallowing in the details.
Congress in their infinite wisdom did not set the mandated ethanol usage to refiners at a fixed level, or so much per gallon but allocated an aggregate level of ethanol across the refining industry which increases over time. Why does the required total ethanol usage increase over time? To keep our pedal to the metal, ethanol wise, and keep in step with increasing gasoline demand. But gasoline demand is decreasing. Oops L.
Automobile manufacturers only allow for blend of up to 10% ethanol since the alcohol is corrosive and attacks moisture both of which over time degrade the engine and... wear it out faster. So with increasing requirements for total ethanol usage, a limit of a 10% blend, and decreasing demand for gasoline, what’s a refiner to do?
Introduce the RIN. EPA’s own Renewable Identification Number. If you can’t blend enough ethanol you can buy credits to allow you to do so. Yep, you got it, it’s kind of just like a REC (Renewable Energy Credit). To make it convenient for everyone one, they can be traded. Guess what? Introduce Enterprising Hedge Funds who saw the storm clouds gathering and scarfed up all the RINs. RINs that in January were trading for a few pennies traded for over a dollar earlier this month.
So there you have it. Gasoline is expensive in part because of the ethanol we are using and because of the ethanol we aren’t using. So why doesn’t Congress just roll back the aggregate ethanol requirements? Introduce the Farm Lobby.
The more things change, the more they stay the same. Thank You Congress.
