Will Weak Gasoline Demand Weigh on Ethanol Prices in 2013?
?? Fundamentals
The recent rally in Ethanol futures to start 2013 ran into resistance, despite steep declines in production of late. The Energy Information Administration reported on Wednesday that U.S. Ethanol production fell just over 5% last week to 784,000 barrels per day. This is the lowest reported weekly production total since these figures began being tracked in 2010 and demonstrates the struggles U.S. producers have faced since this summer’s severe drought drove U.S. Corn prices to record highs.
Despite sharply lower production the past several weeks, U.S. Ethanol inventories actually rose last week to 20.4 million barrels-up 2.6% for the week. With inventories currently at 6-month highs and U.S. Gasoline demand slack, it appears that the nearly 20-cent per gallon rally seen in the March futures since the beginning of the year may be nearing an end, especially with what appears to be good overhead resistance appearing above the 2.400 price level.
?? Technical Notes
Looking at the daily chart for March Ethanol, notice after a nice price rally to start the year, March Ethanol seems to be running into some resistance at the 100-day moving average, currently near the 2.366 price level. Wednesday’s rally to 2.374 closed the chart gap from December 10th, but selling pressure emerged after the EIA energy stocks report was released showing an increase in Ethanol inventories and lower gasoline demand.
The 14-day RSI is strong, but appears to be turning lower, with a current reading of 66.10. The October 11th “spike” high of 2.448 looks to be the next major resistance level for the March contract, with support found at 2.322.
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