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Midwest floods are not to blame for higher gas prices

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As gas prices are on the rise, everyone wants to put the blame somewhere. News coverage of the recent floods suggests ethanol shortages are to blame for rising gas prices. Setting the record straight on this, the Renewable Fuels Association just released an analysis that explains the real reasons why consumers are paying more at the pump. RFA’s analysis says prices are up due to several factors including:

  • A surge in crude oil prices since the start of the year.
  • Typical seasonal patterns in gasoline pricing, partially reflecting the changeover to summer specifications.
  • Refinery maintenance and unplanned outages.

The analysis states: “While the Midwest floods in mid-March did affect ethanol transportation and some individual facilities, this occurred at a time when ethanol inventories were at record levels. Stocks in most regions, including the Gulf Coast and East Coast, are above year-ago levels. West Coast inventories have been declining since the start of the year but are slightly above the minimum levels experienced over the last 12 months.”

“It has long been recognized that crude oil prices are the primary driver of gasoline prices. Crude oil prices sold off sharply in late 2018 and then rebounded sharply in the first quarter of 2019, and gasoline prices followed. Since late December 2018, crude oil futures prices have increased by approximately 40 percent, while gasoline futures have risen by roughly 50 percent.”

By comparison, ethanol futures prices have increased only about 5 percent. In fact, ethanol prices have been at a steep discount to gasoline prices for most of 2018 and 2019, with ethanol futures recently trading at a 60 cent/gallon discount to gasoline futures. 

The analysis concludes that ethanol has actually played a role in keeping prices down. “Given the steep discount of ethanol prices to the prices of gasoline and competing sources of octane, ethanol has been helping to hold down gasoline prices for consumers in the vast majority of the country.” 

Any views or opinions expressed in this article are those of the author and do not reflect those of AGDAILY. Comments on this article reflect the sole opinions of their writers.
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