Over the last month, the price spread between ethanol and RBOB gasoline futures prices have seen significant changes. Ethanol prices went from a 66-cent discount to front-month RBOB gasoline futures contracts March 1, to a 64-cent-per-gallon premium over the RBOB gasoline market April 1. This accounts for a shift of $1.30 per gallon.
But unlike most spring seasons, the shift does not represent a wide move in RBOB gasoline prices as May contracts have been contained within a 10-cents-per-gallon range over the last month.
The ethanol market is in the middle of a volatile market shift that has accounted for front-month April contracts to rally $1.25 per gallon through March.
The ethanol industry has seen some major challenges during the last two months which have created near-panic buying by many involved in the market. The cold, snowy, wintery weather through the north and east has limited the availability of rail cars and train transport of ethanol to many destinations.
Also, tightening supplies through the entire country have created concerns that there may continue to be very tight supplies of product. Even as production recovers from lower winter levels, supplies have not seen significant improvement. To add to this, it appears that demand for ethanol through the country is growing at a faster pace this spring than in previous years. This could increase concern for those who need to have product available to meet regulated demand.
However, this short supply is expected to be relatively short-lived as sharp discounts are seen between spot month contracts and all other contracts on the board. June ethanol futures are trading more than $1 per gallon lower than April futures, leaving the market to remain extremely volatile during the next several weeks.
Rick Kment can be reached at firstname.lastname@example.org
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