Brian L. Milne, Refined Fuels Editor, Telvent DTN
The U.S. retail gasoline price average should dip from a one-month high, as wholesale gasoline prices at distribution terminals in major metropolitan markets eased slightly during the final full week of September.
Wholesale spot prices did increase early last week, slumped midway through the week, while again moving higher on Sept. 24 in most regional markets The late week move higher recaptured early week gains, mitigating or reversing weekly losses in regional spot markets. As such, street prices will mark a minimal change nationally.
Another caveat is ethanol prices, which surged higher in September.
Spot ethanol prices rallied in September amid atypical market dynamics, including sharply higher corn prices, as a summer drought in Russia cut global supply of wheat. Brazil, historically the world’s largest ethanol exporter, has been largely absent from the global market amid tightness in sugar supply. Sugar is Brazil’s feedstock for producing ethanol, while the United States primarily converts corn into ethanol.
Europeans use wheat as their feedstock, and have been directly impacted by a Moscow ban on Russian wheat exports. Meanwhile, lost Brazilian ethanol exports has further squeezed the Old Continent, triggering demand for U.S. produced ethanol.
Some U.S. ethanol plants retooled facilities to meet European ethanol specifications, which have less water content than that in the domestic market. As plants reduced output to make this adjustment this summer, supply was ratcheted lower.
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Meanwhile, obligated parties that must use ethanol, or buy an offsetting credit in the open spot market, had mostly limited their late summer buying of ethanol, anticipating the price freefall in fair market values seen repeatedly at summer’s end as driving season concludes. This didn’t happen, creating a market short environment.
The short domestic market combined with U.S. ethanol exports and a surge to a two-year high in corn prices all rallied ethanol prices through September. This pushed ethanol to a premium to gasoline. Ethanol prices are now coming under pressure, but slipping from values far higher than many would have guessed as the third quarter nears an end.
Ethanol is used in virtually all reformulated gasoline in the U.S., with RFG the only gasoline that can be sold in parts of the country that are not in attainment with Clean Air Act provisions. Additionally, federal demand mandates have dramatically increased the breadth of ethanol blending in gasoline nationwide.
So, while the trend for gasoline demand and prices is lower after the summer driving season, a few anomalies have disrupted expectations. In addition to the current ethanol price premium to gasoline, a sharply weaker U.S. dollar amid the Federal Reserve’s announcement on Sept. 21 that it will implement additional quantitative easing-expanding its balance sheet by buying more debt-should the struggling U.S. economic recovery worsen has pushed crude oil higher. The greenback tumbled to a six-month low against the euro on the news.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for more than 14 years as an analyst, journalist and editor. He can be reached at [email protected].