According to this Los Angeles Times article this morning, the US EPA is considering a temporary waiver of the oxygenate switchover to ethanol in New York and California that took effect this spring. Information that the government is considering this waiver moved oil and gasoline market prices strongly downward.
Responding to comments by Energy Secretary Spencer Abraham, who told Congress that the Bush administration was “seriously” considering the waiver requests, traders sent the price of gasoline for April delivery down 5.2% to $1.076 a gallon on the New York Mercantile Exchange.
Benchmark crude followed suit, falling $1.49, or 4.2%, to $34.27 a barrel on the Nymex, where the price of oil has fallen more than 10% since hitting a 13-year high of $38.18 on March 17.
“Just one statement about granting the waivers brought gasoline prices down,” said Phil Flynn, senior oil analyst at Alaron Trading in Chicago. “When the price of gasoline tanked, not only did it bring down crude, it brought down” all petroleum-related futures.
This article, by Liz Douglas (who knows this industry really well and understands its economics), contains a lot of good background information on California’s five-year battle with the US EPA over the federal fuel oxygenate requirement.
This Boston Globe story adds more detail.
California and New York have asked for temporary waivers of rules to use additives that make gasoline burn more completely. The states, along with Connecticut, have banned MTBE, a blending agent, sparking concern that a change to ethanol, its chief alternative, may create supply disruptions. ”The gasoline supply situation has been a big concern all year,” said John Kilduff, senior vice president at Fimat USA Inc. in New York. ”The administration has the power to wave a wand and relieve some of the pressure. It looks like it has finally decided to consider it.”
This UPI commentary is informative and makes a very important point:
But the idea of waiving oxygenate requirements altogether is something the ethanol industry and its friends in Washington are not about to accept.
The oil industry has stated in recent months that it can produce gasoline that meets Clean Air Act emissions standards without adding any oxygenates. Giving major states a waiver that might help them prove their point could open the door to the unraveling of the pending Energy Bill’s provisions that mandate increasing the amount of ethanol used nationwide to around 5 billion gallons annually.