Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The
Xiaodong Du, Dermot J. Hayes
April 2008 [08-WP 467]
Du, X. and D.J. Hayes. 2008. "Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The." Working paper 08-WP 467. Center for Agricultural and Rural Development, Iowa State University.
Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications.
Keywords: crack spread, crude oil prices, ethanol, gasoline prices.