The price difference between the RBOB gasoline and ethanol futures price is referred to as the RBOB to Ethanol Spread. Traditionally this price spread carries a positive number, with the RBOB gasoline price trading at a premium, and many times a significant premium to the ethanol market price.
A typical dip into negative territory (where ethanol prices move above the price of RBOB gasoline) only lasts a short period of time due to light gasoline demand.
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But recent market trends have been different; negative spreads have been in place since August 2015 due to the stability in ethanol prices and pressure in gasoline prices. The current price spread is listed at minus 34 cents per gallon, meaning that ethanol futures are priced 34 cents higher than front-month RBOB gasoline futures prices.
But as weak as this spread is, it is significantly improved from the minus 50-cent spread seen in early February, when RBOB gasoline futures hit contract lows. The focus on falling supplies of gasoline through the end of the month, as well as growing demand over the last couple of weeks, is sparking a strong move higher as RBOB gasoline prices have closed at $1.056 per gallon, firmly above $1 per gallon.
The expectation that this spread will narrow even further over the next several days and weeks will continue to bring gasoline and ethanol prices together as increased demand is seen and additional market activity develops.
Rick Kment can be reached at firstname.lastname@example.org
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