Ethanol Boosts Pump Price by Nickel

54-cent "zoom" contributes to gasoline price increases, says Lundberg

Ethanol corn nozzle

CAMARILLO, Calif. --The U.S. average regular grade price of gasoline rose 4.74 cents per gallon over the past two weeks, to $3.5572. It is a 26-cent rise over the past six weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

Look anywhere but to petroleum for the main cause of this rise. It is U.S. supply dislocation and global market aspects of ethanol that has just added nearly a nickel to the pump price. Ethanol had already been contributing to gasoline price hikes, but in this case its dramatic price upticks are thrown into the spotlight.

In this period, crude oil didn't rise. Both WTI are Brent are weaker, despite Libya's crippled output and despite Ukraine tensions. And gasoline supply is not a problem, as stocks are still ample and the use rate of U.S. refining capacity is above what it was a year ago despite maintenance projects. It mostly is not the shift to summer blend vapor pressure caps, which adds cost to gasoline, as the shift is just now getting underway except for in a pocket of Southern California. And it is not industry margin on gasoline, as improvement for refiners was not stellar and as retailer margin actually shrank slightly.

It was mostly ethanol's 54-cents per gallon zoom over the past two weeks that boosted retail gasoline by approximately one-tenth of that amount.

Assuming that neither crude oil nor ethanol prices skyrocket from here, the average pump price may be in store for a few more pennies as retailers continue to pass through wholesale hikes they are receiving.

Instead of expanding to a healthier width, the U.S. average retail margin on regular grade narrowed 0.4 cents per gallon to its current 12.28 cents.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

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