The benchmark Argo ethanol market has lost much of its premium to the Chicago paper market over the last few days amid weakness in US ethanol markets.
"The physical market feels a bit unsettled," said one source. "I'm not sure what to think here."
Argo rebounded slightly to a 1.75-cent premium to the front-month Chicago ethanol swap Friday morning after S&P Global Platts assessed it at a 1.3-cent premium Thursday.
On Monday the premium was 5.7 cents.
The premium is currently near its narrowest since late August, but last month's move was largely due to an end of month move in the markets ahead of the front-month swap rolling while the recent fall in premium came as the Argo market tumbled.
Argo had seen strength through mid-September despite high production and stocks amid expectations for maintenance to pull output lower. But prices began tumbling as producers hedging backed away from the market and weekly US Energy Information Administration data showed production remaining high.
The most recent set of EIA data, released Wednesday, showed production tumbled 37,000 b/d in the week ended September 22. It was the first time output was below 1 million b/d since June.
Stocks also fell, shedding 398,000 barrels. Both production and stocks were well below market expectations.
But the lower output and stocks did not bolster prices. Instead, Argo continued to retreat amid aggressive selling pressure.
Early September saw a strong barge loading program out of Argo that drew down stocks in the Illinois terminal. But those barge loadings have slowed, leaving more product available in the terminal.
"Cash doesn't feel great," said a second source after the EIA was released. "With that much production offline the market should have been tighter."
