Ethanol is playing an increasing role in the US gasoline market, extending its reach beyond reformulated and into conventional blends. The amount of ethanol-blended conventional gasoline hit a record high last week, according to the latest Energy Information Administration weekly oil data.
That's hardly a shock, considering how cheap ethanol has become relative to conventional unleaded. According to Platts data, ethanol in Houston Wednesday was worth $1.655/gal, compared to $2.03485/gal for conventional 87 unleaded.
The amount of conventional gasoline blended with ethanol rose to 1.959 million b/d during the week ending October 5. Assuming a 10% blend, that would imply 196,000 b/d of ethanol was added to US gasoline stocks, totaling 1.372 million barrels over the week.
That could go a long way to explaining the relative weakness in NYMEX RBOB compared to heating oil futures. While it is normal that heating oil rise above gasoline heading into winter, as gasoline demand drops and distillate demand for heating fuel increases, the spread of more than 20 cents/gal in favor of heating oil appeared a bit wide.
The spread has seemed especially out of whack considering US gasoline stocks have been running below historical norms, while distillate has been well above-average. But the abundance of cheap ethanol could be clouding the picture, and making gasoline supplies more ample than they had previously appeared.
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