The Chicago ethanol swap market remained in its steepest structure so far in 2017 Tuesday as strong demand supported the front of the curve while concerns over exports weighed on the back.
"People think September will be tight," said one source about the strength in the front-month swap.
The September Chicago ethanol swap maintained a 6-cent premium to its October counterpart Tuesday as S&P Global Platts assessed the September swap at $1.5050/gal and October at $1.4450/gal.
The structure, the widest backwardation or contango since December, was mainly due to bullish momentum for prompt physical product but also increased by some pressure on October.
Kinder Morgan's Argo, Illinois, terminal, the heart of physical ethanol trading in the US, has seen a strong barge loading program in recent weeks.
As higher demand draws down the terminal physical prices have climbed, boosting the paper market.
In the back of the curve, prices have felt pressure from the Brazilian government's recent decision to levy a 20% tariff on ethanol imports above 600 million liters.
That has cast some doubts on whether US sellers will be able to hit 2017 export goals. But market participants have hesitated to update their models until the decision is published in Brazil's official gazette.
But the primary driver behind the structure was the strength in the prompt market.
Hurricane Harvey, now a tropical storm, remained large on people's minds as gasoline markets shot higher on the drop in production from the Texas coastal refineries. The rally in gasoline prices added support to ethanol's bullish prompt market.
