(Adds comment from refining and retail organizations)
By Jarrett Renshaw and Humeyra Pamuk
NEW YORK, Oct 8 (Reuters) - U.S. President Donald Trump will seek to lift a federal ban on summer sales of higher-ethanol blends of gasoline on Tuesday, a senior White House official said, delivering on a move long sought by anxious Midwestern farmers ahead of the Nov. 6 elections.
The move will be coupled with restrictions on the multibillion-dollar biofuel credit trading industry sought by merchant refiners like Valero Energy Corp and PBF Energy Inc. Those rules would be aimed at retailers and oil majors accused by merchant refiners of hoarding the credits and driving up the cost of complying with biofuels blending laws.
The U.S. Environmental Protection Agency currently prohibits summer sales of gasoline blended with 15 percent ethanol, or E15, due to smog concerns.
Because ethanol is cheaper than gasoline, the administration hopes it will bring down retail prices, which currently average $2.91 a gallon, more than 40 cents higher than this time a year ago, according to the American Automobile Association.
The announcement will mark the end of a months-long effort by the White House to bring rival corn and oil industries together over reforms to boost ethanol demand while alleviating compliance costs for refiners. The rival camps cut across Trump's strong base of rural voters and blue-collar workers,
The refining industry came out against the proposal, arguing they should have gotten more than trade restrictions in exchange for lifting the summer ban.
"The president has promised to broker a deal to reform the RFS that works for all stakeholders. This isn’t it," Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers, said in an statement.
Trump plans to hold a closed-door event with ethanol producers in Washington before a rally in Council Bluffs, Iowa, on Tuesday to highlight the change. Council Bluffs is in a moderate congressional district represented by incumbent Republican Dave Young, who is locked in a tight race.
"Rural America needs a shot in the arm, and this is it," said Emily Skor, chief executive officer of Growth Energy, a biofuel trade association.
Farmers have been frustrated with weak corn and soybean prices hurt by the trade war between the United States and China; Trump has promised the trade war with China will eventually boost the U.S. economy.
The U.S. Renewable Fuel Standard requires refiners to blend increasing amounts of biofuels like ethanol into the fuel pool annually, or buy credits from competitors who do. Refining companies that buy the credits have complained about volatile prices.
The EPA will consider forcing blenders, retailers and trading houses to sell credits more quickly, the official said. The agency may only allow obligated parties like refiners to buy credits, and may require greater public disclosure as well.
Biofuel credit prices were near five-year highs last year, hitting nearly $1 each, but have dropped sharply to their lowest since 2013, due mainly to the EPA's expanded use of waivers freeing small refiners from their obligations.
The credits were trading at roughly 12 cents each on Tuesday morning, traders said.
About 400 million gallons of E15 are sold in the U.S. annually, a fraction of the roughly 142 billion gallons in U.S. gasoline sales last year.
The American Petroleum Institute, the largest U.S. oil trade association, opposes lifting the ban, which would hurt their market share. They say E15 gasoline ruins older cars and potentially voids warranties, and have threatened to sue, arguing the EPA lacks the legal authority to strike the ban.
The National Association of Truck Stop Owners, or NATSO, came out against the trade restrictions, arguing they are solutions in search of a problem. The retailers can benefit from trading credits and the restriction could hurt profits.
"The RIN market as it exists today is structurally sound; it provides the necessary price discovery and risk management vehicles for parties in the production, distribution, and blending of renewable fuels," said David Fialkov, head of the association. (Writing by Humeyra Pamuk Editing by Marguerita Choy and Jonathan Oatis)