Civil unrest in the Middle East may be driving up crude oil prices, but Mother Nature and seasonal demand continue to be ethanol&rsquo;s largest market influences, according to several market analysts.
Max Thomasson, commodity sales and operations manager for CHS Inc.&rsquo;s renewable fuels division, said the recent series of winter storms that has battered areas of the Northeast and Central Midwest has affected ethanol demand, which unfortunately is coinciding with the lowest seasonal demand time of the year. This has caused ethanol prices to trail corn slightly, causing some pressure on ethanol prices relative to corn.
Chris Highsmith, research analyst for Eco-Energy Inc., also believes weather has combined with low seasonal demand to create less than ideal circumstances for the ethanol market. &ldquo;The big issue we&rsquo;re seeing is the seasonality of gasoline demand going into February, the weakest gasoline demand of the year historically, and that&rsquo;s continuing to be the case this year, maybe even more so because of the weather we&rsquo;ve been having,&rdquo; he said. Additionally, the ethanol industry is producing record amounts of product according to U.S. Energy Information Administration data, due in part to additional capacity coming online shortly before the New Year. &ldquo;That trend, with seasonal gasoline demand down and ethanol production up, is generally not a good combination for ethanol margins for plants,&rdquo; Highsmith said.
Rising oil prices will affect the ethanol market, but not has severely as some may speculate, according to the analysts. Highsmith said upward pressure on crude prices will boost RBOB prices, which in turn will increase the spread between RBOB and ethanol. &ldquo;If nothing else, it&rsquo;s giving ethanol room to move up and still retain some margins for the people blending it,&rdquo; he said. But Thomasson said if increased per-barrel prices inflate the price at the pump too much, it could be a detriment to the ethanol market. &ldquo;I don&rsquo;t see a huge run up in prices affecting ethanol other than adversely,&rdquo; he said.
Neither Highsmith nor Thomasson expect E15 to have an impact on this year&rsquo;s market, citing concerns over storage and liability issues. Thomasson said much optimism is expressed over E15&rsquo;s potential to increase ethanol&rsquo;s market share, but he has yet to see real evidence that E15 is adding significant demand to the market. The earliest either company expects E15 to play a role in influencing ethanol markets is next year.
California&rsquo;s Low Carbon Fuel Standard was expected to disrupt the ethanol market when it went into effect on Jan. 1, but that, too, has had little effect on market activities. &ldquo;Prices have increased modestly on the West Coast to accommodate the lower carbon intensity requirements, but it really has been kind of status quo,&rdquo; Thomasson said. According to Highsmith, amendments filed by Midwest ethanol producers to lower the carbon intensity of their fuels have increased the amount of ethanol allowed into the California market, lessening the impact of LCFS. &ldquo;It&rsquo;s not as big of an issue as most people thought it would be,&rdquo; he said.
Internationally, there continues to be demand for exports to Europe, but sustainability requirements are making it difficult for most U.S. producers to export to the EU27, according to Thomasson. The EU is currently only accepting fuel that has been certified through the International Sustainability and Carbon Certification System, a process which includes proving the fuel was produced using sustainable biomass. &ldquo;That&rsquo;s a big hurdle for U.S. producers because there aren&rsquo;t many who have achieved that certification,&rdquo; he said, adding that he is aware of only two U.S. producers who have received ISCC-certification.
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Civil unrest in the Middle East may be driving up crude oil prices, but Mother Nature and seasonal demand continue to be the largest market influences for ethanol, according to several market analysts.

Storms, seasonal demand impact ethanol markets

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2024 International Fuel Ethanol Workshop & Expo

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North American SAF Conference & Expo

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Storms, seasonal demand impact ethanol markets