Analysis: Increased Ethanol Production Lowers Gasoline Prices

In the United States, renowned energy economist Philip K. Verleger, who served as an energy advisor to both the Ford and Carter administrations, said that consumers are saving 50 cents to $1.50 per gallon on gasoline as a result of increased ethanol production under the Renewable Fuel Standard (RFS).

With the RFS program, annual consumer expenditures were cut in 2013 between $700 billion and $2.6 trillion across the globe. "This translates to consumers paying between $0.50 and $1.50 per gallon less for gasoline," writes Verleger in a commentary posted at pkverlegerllc.com.

According to the commentary, crude oil prices would be between $15 to $40 per barrel higher today without the substantial volumes of ethanol that have been added to petroleum inventories since the RFS was enacted in 2007 - the equivalent of Ecuador's crude oil output to the world market.

The economist says that had Congress not raised the renewable fuels requirement, commercial crude oil inventories at the end of last month would have dropped to 5.2 million barrels, a level two hundred million barrels lower than at any time since 1990. Stocks that low, he says, would almost certainly have pushed prices from the current range of $103 to $110 per barrel up to $150 per barrel.