Blend Wall: Big Oil Versus Big Agriculture

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July 26 (Bloomberg) -- Nela Richardson, Analyst for Bloomberg Government, reports on the blend wall mandating ethanol levels in gasoline and the battle between two lobbying giants. She speaks on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

The blend wall is the very interesting phenomena, the government mandate requires that a certain amount of gasoline be blended with boy fuels, generally ethanol.

The problem is for refiners, there's only two options.

When you use more boy fuels and gasoline production.

One, you produce more gas to meet the requirements and you can fulfill the mandates or, two, you put more percentages of ethanol into gas.

Now, the problem with option one is that gascon summings is on the decline overall -- gas consumption is on the decline overall.

If you put too much ethanol in somebody's car, their engine blows up.

Not literally but it does bad things to the engine.

So both options are not working, it's increasing the price of gas overall.

Is it as simple as to blame ethanol for the rising gas prices?

It's not that simple, obviously.

Obviously price -- oil prices are really the main driver of gas and we've seen some disruptions in the middle east, particularly the protests in egypt, that have done a great job of increasing gasoline prices all on their own.

But this ethanol requirement is not helping in this environment of decreased gascon summings.

So -- gas consumption.

Is it bad policy?

Why does the government have a say in this at install usually government policy lags technology.

This is a case where government policy got out in front of technology, but unfortunately only 4% of cars in the u.s. can handle increased ethanol blend.

So the government got out in front of technology and they may have to tinker with this policy a bit in order to match the policy with the current technology.

What kind of pushback is there in washington for congress to do something about this?

There's a lot of pushback and it's growing.

Particularly the refiners, particularly the oil industry, the big oil companies, they definitely want to see this mandate decreased.

But on the other side of the fence are all the coin producers so it's big oil vs.

Big corn.

Those are the people who produce ethanol.

And this puts a subsidy to corn producers to have this mandate in place.

How powerful is the lobby?

That's a good question.

I'm going to put my money on big oil.

Big oil over big farmers.

What can congress actually do about higher gas prices?

Congress cannot do a lot in terms of the overall path of oil.

Oil's determined in a global world market.

So there's a limited amount of things that they can do.

But at margin with ethanol production, there's probably something they can do to either stall the mandate at the current levels or kind of change the match technology.

The thing is this always loses momentum as soon as gas prices come down again.

No one makes noise about it after a while.

It's only a problem during summer driving season when people are feeling the pain at the pump.

And election season.

Oh, yes.

We heard about this a lot during the last election.

We have another one coming up in 2014, a midterm election, we may hear about it again.


This text has been automatically generated. It may not be 100% accurate.


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