Aggressive RBOB gasoline buying supports ethanol futures

By Rick Kment, Telvent DTN | December 30, 2016

Dec. 30—Ethanol traders spent the last couple months of 2016 trying to keep pace with the energy and corn markets, which is expected to continue into early 2017. Ethanol futures saw wild shifts through December, with prices gaining and losing more 20 cents per gallon.

Renewed buyer support was developing through the complex at the time of this writing, with the focus primarily on energy markets. RBOB gasoline futures posted gains of over 29 cents per gallon in the last month, and have rallied over 45 cents per gallon in the last month and a half. Concerns surrounding future trade issues, OPEC's decision to cut overall crude oil production, and strong domestic demand through the winter has added to the counter-seasonal rally, which has set the pace for ethanol trade through the last quarter of the year.

The volatility in ethanol prices continues to create some uncertainty as far as long-term movement and direction of the market. Even though first-quarter 2017 demand is expected to remain sluggish along traditional demand patterns, the potential that these higher prices will continue to hold is expected to keep buyers active in the market through the first weeks of the year. Currently, ethanol futures are holding a 5-cent discount to the RBOB gasoline market. This relationship is expected to continue to adjust significantly, but the direction of RBOB gasoline prices will likely heavily affect overall market moves in ethanol trade.   

 

Gasoline Prices (By Region)

REGION

SPOT

RACK

West Coast

$1.7074

$2.0590

Midwest   

$1.7130

$1.9461

East Coast

$1.6873

$1.9862

Front Month Futures Price (RBOB) $1.6806

 

Ethanol Prices (By Region)

REGION

SPOT

RACK

West Coast

$1.8600

$1.9000

Midwest   

$1.6725

$1.8578

East Coast

$1.7700

$1.7500

Front Month Futures Price (AC) $1.6320