US ethanol seems to resist the siren song of low gasoline prices
Thursday January 21, 2016
US ethanol’s recent pursuit of gasoline’s nosedive has reminded me of the Gin Blossoms classic, “Follow You Down.” In the chorus of that 1996 hit, the band sings, “Anywhere you go, I’ll follow you down. I’ll follow you down, but not that far.”
That’s basically where US ethanol prices are at right now: Looking at gasoline prices, saying, “I’ll follow you down, but not that far.”
Ethanol maintained a discount to gasoline as long as possible, following gasoline all the way down to levels not seen in more than a decade. As gasoline tracks crude into 12-year lows, ethanol has also ventured into its cheapest price since before the US Renewable Fuel Standard was originated in 2005, when the government began requiring blenders to use ethanol at escalating levels.
On January 13, the Platts benchmark Chicago Argo ethanol assessment reached $1.2650/gal, the lowest level since June 2005. Meanwhile, the Platts CBOB Chicago pipe assessment was at 90.33 cents/gal, which was a fourth straight record-low assessment that was further topped in the ensuing four sessions, dipping to 82.25 cents/gal on January 20.
The ethanol assessment, on the other hand, shifted gears, stringing together its first five-day rally since October.
Ethanol seems to be putting its foot down, unwilling to go any lower. While gasoline wanders lower and lower, flirting with the treacherous $1/gal threshold, ethanol prices seem to have reached a floor.
Ethanol producers have seen the writing on the wall for a while now. With all indications pointing to lengthy bearishness in the petroleum complex, US ethanol production was pushed to the limit as producers sought out maximum margin returns while they were still there.
Ethanol production finally topped the milestone 1 million barrels per day mark for the first time in November and has done so two more times since then, US Energy Information Administration data shows. Because t...