Monday, March 24, 2008

Ethanol May Dampen Gas Prices

The Wall Street Journal is reporting that some energy market analysts predict that ethanol production in the United States could lower gasoline prices during the summer driving season. Analysts from the Credit Suisse have been quoted as saying that the nearly 7 billion gallons per year of ethanol being produced in the United States will serve to lower gasoline prices off of their anticipated record high prices coming this summer. What is interesting is that even though both a downturn in the economy and record high corn prices have cut into ethanol profits and dampened drastic increases in ethanol production, an additional 167,000 barrels of ethanol per day capacity has been added this year. This amount is comparable to a full sized refinery and the lower costs built into ethanol compared to the record high oil prices have begun to put negative pressure on the price of gas. The analysts also predict that with the depressed economy, refiners and blenders who purchase oil will have greater pressure put on them to blend ethanol into more of the gasoline so as to keep prices low enough for consumers to keep buying.
The positive results are already being realized right here in Iowa. Although the survey of the national average of gasoline climbed 7 cents per gallon to $3.22 per gallon, E10 prices here in central Iowa have actually dropped about 10 cents per gallon from a week ago to settle around $2.99. Although I am positive both of these prices will climb as we enter June and July, what's really amazing is the profound affects we are seeing on the price at the pump and on the sometimes stubborn mindset of oil refiners and blenders who are being forced by ethanol to take a second look at what might be best for the consumer. Even though ethanol has a way to go before becoming the ultimate fuel of the future, I for one think ethanol needs to do nothing else to prove itself; given the monumental affects it has already accomplished.

For the Wall Street Article, follow the link below:
http://online.wsj.com/article/SB120631308439758089.html?mod=googlenews_wsj

1 comment:

mus302 said...

I would have to agree. I think the most often overlooked benefit of ethanol is the fact that it adds to the fuel supply which is limited by refinery capacity.