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Oil feud to fuel ethanol, corn prices

02/20/2012 @ 12:00pm

"The Iranian thing is a mess! And, it will most likely get worse before it gets better."

That's a direct quote from a grain analyst that is watching how this oil feud could impact U.S. ethanol and corn prices. 

On Sunday, Iran's oil ministry blocked crude shipments to British and French companies in retaliation of sanctions by the European Union on Iran's fuel exports. Specifically, the sanctions include an oil embargo set to begin in July.

As a result of Iran's announcement, March crude oil futures are trading at a 9-month high Monday.

In Agriculture.com's Marketing Talk, 4wd wonders if gasoline prices could be running up to $5.00 per gallon.

Join discussion in Marketing Talk. 

Because corn, ethanol, and diesel are all married to the crude oil crushing market, those agricultural commodities could react this week to the international oil volatility, according to Terry Roggensack, The Hightower Report co-owner. 

"Up to this point, ethanol prices haven't followed gasoline prices higher," Roggensack says. "But, this Iranian situation could eventually cause a gasoline rally and ethanol rally."

Scott Shellady, ICAP Energy  LLC Derivatives Manager, says China's monetary easing announcement and Iran's oil feud should spell a higher trade. "Short term technicals are also bullish. This Iranian deal should scare the traders that are short and could spark them to buy this corn market," Shellady says. "The oil thing was gonna happen anyway. The real scare to me is Israel."

Israel is threatening a pre-emptive strike on Iran if they don't open up their nuclear facilities to inspection.

Ethanol, Gasoline Prices Widen

For most of 2012, ethanol prices have been sitting around $2.29 per gallon, while gasoline prices have jumped from $2.60-to-$3.03 per gallon, in that same period.

For ethanol producers, this has kept margins at a weak level, Roggensack says. 

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