from Bloomberg Businessweek,  Why Abundant Oil Hasn’t Cut Gasoline Prices by Asjylyn Loder, Mario Parker, and Matthew Philips on March 28, 2013

excerpt:

This year, the law requires U.S. refiners to blend 13.8 billion gallons of ethanol into the fuel they sell to domestic customers. In their calculations when crafting the bill in 2007, lawmakers assumed gasoline demand would continue to rise and that refiners would need all that ethanol to make up 10 percent of the fuel sold to motorists. The problem is that U.S. drivers are consuming less, not more, gasoline because they’re driving fewer miles in increasingly fuel-efficient vehicles. As a result, refiners don’t need all the ethanol the government forces them to buy. To make up the roughly 400 million gallon difference between the ethanol the industry needs and the amount the government mandates, refiners must buy credits called Renewable Identification Numbers, or RINs.

The drop in gasoline use has been so dramatic that demand for RINs has spiked, as has the price: from 7¢ a gallon at the beginning of the year to more than $1 on March 8. The price has recently come down to 66¢. If sustained, the increase may add as much as 10¢ to the retail price of a gallon of gasoline, says Bill Klesse, chief executive officer of Valero Energy (VLO), the world’s largest independent refiner. “It’s going to get passed on,” Klesse told an audience of oil industry executives at a March 18 conference. The end result is that refiners have an even greater incentive to sell their fuel abroad, where it isn’t subject to U.S. ethanol requirements.

tips to Mark Perry at AEI/ Carpe Diem, Don’t blame ‘Big Oil’ for high gas prices. Blame ‘Big Corn. 4/2/13:

HKO

Markets are ever changing and dynamic and public policy is narrowly focused and sclerotic.  When they try to influence markets it is at best a clumsy effort and they end up solving problems that would have solved themselves, but often creating new problems that could have been avoided.  It is the ultimate of hubris for a governing policy elite to assume they understand the cumulative actions of millions of market participants enough to control the outcome, or to even know what the outcome should be.

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