Commodities: Ethanol premium evaporates as gas prices surge

Source: By Rick Kment, DTN • Posted: Tuesday, March 22, 2016

Throughout March, ethanol futures have been stable, moving higher and lower within a narrow price range. Ethanol futures have followed a lightly traded and stable corn market in which inventory levels and production capacity have led to a nearly flat market.

Unlike the ethanol market, the RBOB gasoline market surged higher in late March. RBOB gasoline was trading at $1.46 per gallon compared to a month ago when gasoline prices were below $1 per gallon, trading near 90 cents per gallon. The 50-cent-per-gallon rally in RBOB gasoline dramatically has affected the price relationship between the RBOB gasoline and ethanol markets.

Ethanol prices have traded at a premium to the RBOB gasoline complex since August 2015, and through most of January and February were carrying a 30- to 50-cent premium to the RBOB gasoline market. That changed in March when traders moved the focus to upcoming summer demand for gasoline and pushed gasoline prices sharply higher from previous levels. Ethanol markets have remained extremely stable, hovering within a narrow trading range.

With the spring and summer driving season still in its infancy, there is expected to be additional market support developing through the RBOB gasoline market during the next several weeks, although it is likely that prices may have established a more defined trading range. Inventory and production levels of both ethanol and gasoline products remain strong, which may limit price surges long term, putting the emphasis on short-term demand and the need to quickly meet that demand


Gasoline Prices (By Region)
West Coast $1.5947 $1.4586
Midwest $1.3147 $1.5231
East Coast $1.2097 $1.5648
Front Month Futures Price (RBOB) $1.4600


Ethanol Prices (By Region)
West Coast $1.5500 $1.6000
Midwest $1.3700 $1.5850
East Coast $1.4500 $1.7200
Front Month Futures Price (AC) $1.4250