Did ending ethanol subsidy raise gasoline prices?

On January 1, the 45-cent per gallon federal tax credit for ethanol expired. Since then, gasoline prices have gone up in some places by more than 20 cents per gallon, leading to some speculation that there’s a connection.

Case in point, this brief item from a St. Louis TV station specifically mentions the lapsed ethanol subsidy, along with a more vague reference higher wholesale prices.

But as a USA Today piece from a few days ago pointed out, because most gasoline is (at most) 10 percent ethanol, the expiring subsidy should, in theory, only account for an increase of 4.5 cents per gallon at most.

John Funk of the Cleveland Plain Dealer says the bulk of the increase is most likely because of anticipated sanctions against Iran. And analysts say if Iran follows through on its threat to close the Strait of Hormuz, oil prices could shoot up by 50 percent almost immediately.

So did ending the ethanol subsidy cause gasoline prices to go up? Perhaps a bit. But gasoline prices are determined by a complex web of economic factors, and it looks like they’re probably going to keep going higher.

Photo by Nathan Schock via Creative Commons

3 thoughts on “Did ending ethanol subsidy raise gasoline prices?

  1. I have heard so many different explainations on why retail gasoline prices rise and fall so suddenly. Frankly, I don’t know what to believe.

  2. The US EXPORTS a lot of petroleum products! From a recent article:

    Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels.

    Fuel exports, worth an estimated $88 billion in 2011, have surged….
    The volume of fuel exports is rising. The U.S. is using less fuel because of a weak economy and more efficient cars and trucks. That allows refiners to sell more fuel to rapidly growing economies in Latin America, …

    Experts say the trend helps explain why U.S. motorists are paying more for gasoline. The more fuel that’s sent overseas, the less of a supply cushion there is at home.http://news.yahoo.com/first-gas-other-fuels-top-us-export-200739553.html

  3. Right, but that’s just a function of excess refining capacity. We still import a lot of oil.