Ethanol Blog

April 1st Buying Frenzy on Supply Reductions

Rick Kment
By  Rick Kment , DTN Analyst

Any end-of-month and end-of-quarter liquidation that was seen March 31 was quickly washed out of the market as soon as the weekly EIA report posted strong reductions of inventory in both ethanol and gasoline markets.

The expectation that additional demand will continue to grow through April helped spark a sharp 6-cent rally in all nearby ethanol and RBOB gasoline futures contracts. This pushed April ethanol contracts to $1.55 per gallon, and was able to push market prices outside of the short-term range.

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April contract prices are now trading at the highest level since the first week of January, which could help to draw additional buyer support back into the complex, despite expectations of strong longer-term production levels. RBOB gasoline prices moved above $1.80 per gallon as traders look at steady decreases in inventory levels each of the last three weeks.

Looking back at March, the last half of March was extremely uneventful in the ethanol complex with weekly charts nearly flat lining as prices moved just a fraction of a cent per gallon.

Inventory levels wavered through the time period as ethanol production continued to grow. The lack of movement in ethanol markets is not alone as the weekly chart of RBOB gasoline futures remained just as stable with prices hovering within 1 cent per gallon of $1.78 per gallon.

The focus through the market will continue to build on growing seasonal demand for gasoline, which is a very good indicator of overall ethanol demand. Although daily moves are easily washed out by weekly and monthly chart trends, the sharp losses in corn futures prices seen March 31 could create some significant changes in the ethanol industry and price structure if traders continue to focus on abundant and cheaper corn supplies through not only 2015, but well into 2016.

Rick Kment can be reached at rick.kment@dtn.com

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