When record high oil prices plagued the globe, many thought $100 per barrel was going to be the new norm. But this wasn’t the case when in February 11, 2016 a barrel of oil was trading for only $26.05 per barrel. What happened? To learn more about the rise and fall of oil, Tom Kloza, global head of energy analytics with the Oil Price Information Services (OPIS), took the stage at the 29th annual ACE Ethanol Conference to give attendees a lesson in oil prices.
One interesting fact during Kloza’s presentation was that the first time the globe saw $40 per barrel prices was in October 1990 (Desert Storm) and then oil dropped to $9.75 per barrel before rising back to $40 per barrel in May 2004. This morning, oil is trading around $42 and the market is telling us, said Kloza, is that oil will be around $44-$46 per barrel for the next 17-18 months.
So what does this mean for corn ethanol? Kloza said oil prices are too low and its not sustainable so prices will head back up to as high as $75 dollars sooner than later, somewhere around 2018-2020, said Kloza. Some of his other predictions included that corn ethanol will “pop” if there is the right drought conditions. E15 is a no-brainer, especially after September 15th when EPA allows stations to sell E15 again. E15 is selling at an average of 5-8 cents less than traditional octane and this is a great rehearsal for higher ethanol blends especially over the next six months. There is an octane race and he sees ethanol as the winner.
Kloza also said that the retailer market is seeing differentiated gas and battle lines are being drawn. Especially for independent retailers, they are using ethanol blends to their advantage.
Learn more about the future of oil prices by listening to Tom Kloza’s presentation:
Tom Kloza, OPIS, #ACE16 Presentation