Weather Forecast


Should mandate end, ethanol would stay in fuel

A grain truck drives near grain storage bins as it enters the Great River Energy Blue Flint Ethanol plant in Underwood, N.D., in February. (Bloomberg News photo)

CHICAGO -- Ethanol, the best-performing energy commodity this year, is cheaper than gasoline, encouraging refiners to use the biofuel even if President Obama's administration ends a requirement to do so.

A 48 cent-per-gallon discount to gasoline provides companies including Exxon Mobil and Valero Energy an opportunity to profit by blending the corn-based additive into fuel, while easing prices at the pump for consumers. Marketers may use ethanol as they look for the cheapest way to boost engine performance and reduce pollution.

The most severe U.S. drought in 56 years has prompted lawmakers from both parties to ask the Obama administration to suspend the mandate because of the potential impact on food costs. Ethanol will consume 42 percent of this year's corn crop, according to government estimates, up from 41 percent last year. The biofuel has been blended into more gasoline than ever this year, Energy Department data show.

"It's just ingrained in the supply and distribution and it's having a moderating effect on pump prices," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. "As long as they were still allowed to use it, most would. The lower price and just the logistics of taking it out, most would still use it."

Denatured ethanol has climbed 21 percent this year, more than the 16 percent gain for gasoline on the New York Mercantile Exchange.