Ethanol Markets Under Pressure as Gasoline Weakness Drags Renewable Fuel Index

Correlation with Petroleum Products

Ethanol's price action is currently closely tethered to the gasoline market. As RBOB gasoline futures tumble to five-year lows, the demand for ethanol as a blending component has softened. Furthermore, U.S. ethanol production has remained seasonally high, leading to a build in inventories that is capping any potential for a price recovery in the short term.

Feedstock Costs and Agricultural Influence

While energy markets are bearish, agricultural feedstock costs provide a modest floor for ethanol. Corn prices have stabilized recently, preventing a total collapse in ethanol margins. However, with global trade barriers increasing and the U.S. dollar remaining strong, ethanol producers are finding it difficult to maintain pricing power in international export markets.