The front-month Chicago ethanol swap was assessed 1 cent over Chicago Argo ethanol Thursday after trading at a discount since April 7.
Platts assessed the front-month swap at $1.5350/gal Thursday, while Argo was assessed at $1.5250/gal.
"Physical just feels very weak," said one source when asked about the shift in structure.
As producers entered maintenance season this month, production fell and stockpiles were eroded by exports and domestic demand. This brought the physical market above paper, though only by as much as 1.3 cents/gal, on April 7. But the relative strength in the physical market is waning.
"The writing is on the wall is that we're going to be running high production numbers again soon," said source said.
US ethanol production crested above 1 million b/d three times in the last five months. The highest was 1.008 million b/d on November 20, 2015 and the most recent on January 8 at 1.003 million b/d.
As producers have demonstrated they can run at such high production rates, market sources said that the physical market could quickly become inundated in product again.
Though the paper market has traded above the physical market for much of April, early 2016 saw the sharpest difference between the two products in the US ethanol market's history.
Record high production and stockpiles created an oversupply that forced Kinder Morgan to redirect deliveries away from its Argo, Illinois, terminal, the main hub of physical ethanol trading in the US.
That added downward pressure on the physical market that caused a wide separation from the paper market. The difference between the markets averaged 4.27 cents/gal in March, the month when Argo was under a "quasi-embargo."
