Oil Prices Hit Record $115 a Barrel

Oil Prices Hit Record $115 a Barrel
As Ethanol Helps Prevent Higher Prices
As consumers throughout the world face record oil and food prices, the impact of ethanol production is being criticized rather than appreciated for helping to keep oil prices lower than they otherwise would be.  It is also often overlooked that prices for commodities like wheat and rice have risen higher than others and that these are crops not used in ethanol production.

Without the expansion of biofuel production and use in the US, Brazil and elsewhere, world oil demand would increase and so would the price.  Merrill Lynch analyst Francisco Blanch told the Wall Street Journal that world oil prices would be 15% higher.  At today’s record prices, that would equate to $132 per barrel of oil.  But that’s not all:

• In 2008, worldwide ethanol production is expected to reach more than 16.2 billion gallons which is equivalent to 1 million barrels of oil per day.
• According to one estimate, as of April 4, the US consumed over 1.9 billion gallons of ethanol, the equivalent of nearly 46 million barrels of oil.  Without ethanol, the oil industry would have had to draw down gasoline inventories and import those barrels.
• Without ethanol in America’s gasoline supply, gasoline prices could be more than 25% higher than they are today.  Diesel prices, already higher than gasoline, would be another 16% higher.

The addition of ethanol to US gasoline supplies not only helps keep gasoline prices down, but also helps keep the price of crude oil lower than it otherwise would be which prevents the cost of food from increasing even more.

Current Oil Market Fundamentals
Worldwide oil production is expected to reach 87 million barrels per day in 2008.  Oil demand is growing in China and other rapidly developing countries by 1 million barrels per day according to the Energy Information Administration.

With little excess oil production capacity and rapidly growing demand, prices for crude oil have already reached an all time high of more than $114 per barrel.

Now, the Energy Information Administration tells us that America’s oil refiners are utilizing even less of their refining capacity than they were this time last year.  Even though repairs resulting from Hurricane Katrina are complete, American refineries are utilizing 9% less of their capacity at a time when gasoline prices are at all time highs.  

Clearly, without ethanol helping to expand fuel supplies, gasoline prices would undoubtedly soar to even greater heights.