ENERGY PRICES WERE WEAK AT THE START OF THIS WEEK… Crude oil bulls in New York and London failed to parlay last week’s strong close, while Henry Hub natural gas bulls demonstrated, once again, their inability to trade their way out of a paper bag.
The lousy output numbers in PADD V coincide with the ongoing soap opera that is Pacific Ethanol, the largest marketer and producer on the West Coast. According to various wire reports, the company is on the brink of Chapter 11. Last week Pacific Ethanol reported a $146 million loss in 2008, compared to a $14 million loss a year ago. The company’s revenue surged by more than half to $703 million last year, but just like Gateway Ethanol, Greater Ohio Ethanol, Beatrice Biodiesel, Bioenergy of America, Ethanex Energy, et al. before it, Pacific Ethanol cannot navigate the volatility in agricultural feedstocks and the attendant squeeze on margins.
According to the company’s March 31st 10K filing with the SEC:
Based on the current spread between corn and ethanol prices, the industry is operating at or near break-even cash margins. The current spread between ethanol and corn prices cannot support the long-term viability of the U.S. ethanol industry in general or us in particular.
On the other hand, one industry’s bane is another industry’s elixir. To wit, the lack of bullish follow through in ethanol prices continues to foster a favorable environment from gasoline blenders.
While discretionary blending economics (conventional gasoline plus ethanol) have been modest of late, relative to gasoline economics in general, discretionary blending still presents a viable alternative, as analyzed in today’s issue of The Schork Report.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.