Oil Prices Heat Up Industry

U.S. ethanol companies got a boost when oil topped $100 per barrel last week, analysts tell Reuters.

U.S. oil futures briefly hit a record of more than $100 per barrel on Jan. 3 as the country’s crude supplies fell for the seventh week running amid soaring global demand, according to a Reuters report.

"One hundred-dollar oil eliminates a lot of problems for ethanol," Ron Oster, an analyst at Broadpoint Capital Inc. in Missouri, said in an interview.

Times had been tough as recently as October for ethanol companies. A 40 percent jump in U.S. capacity to make the alternative fuel during the year lead to fears of oversupply. The doubling in prices for corn — the main U.S. feedstock for ethanol — to well over $4 a bushel also hurt profit margins and company shares. And questions over whether ethanol made from corn cuts emissions of the main greenhouse gas, carbon dioxide, have lingered, reducing some interest in the fuel as a green replacement for gasoline.

But oil’s rise of about $20 a barrel since early October, combined with mandates for a six-fold increase in ethanol production over the next 15 years in the new U.S. energy law, have pushed shares highe, Reuters reports. VeraSun Energy Corp. shares jumped 62 percent since lows this fall, U.S. BioEnergy Corp. shares were up nearly 97 percent, Pacific Ethanol Inc shares were up nearly 107 percent, and Aventine Renewable Holdings shares were up nearly 67 percent. Shares of Archer Daniels Midland Co. (ADM), the second-largest U.S. ethanol producer after private company Poet, were up nearly 50 percent from its year low in mid-January 2007, though ADM is not a pure-play ethanol company.

(Source: Reuters)
 

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