Ethanol Stocks: Bouncing Back

The current status of the ethanol sector may not be sizzling, but it sure isn't dead. So far, ethanol stocks this week have performed reminiscent of the good old days. The cumulative affect of Pacific Ethanol Inc.'s (PEIX) first plant being complete, and OPEC's decision (though still undecided) to cut output of 1 million barrels a day, have given the ethanol sector a strong push. As a result, the majority of the ethanol stocks are up big, and volume has significantly increased. It is obligatory, though, to carefully track the decline in crude oil prices (sold today near its 2006 low of $58 a barrel), as it can quickly turn ethanol's optimism to pessimism. There is some reassurance due to OPEC's proposition. As Gordon Kwan of CLSA puts it, "If [crude oil] prices remain at this level, there's still not much motivation to cut, but if prices keep falling rapidly they will want to pre-empt that." OPEC will help investors by essentially price flooring crude oil. So how much will OPEC's reduction raise the price of crude oil? Can ethanol companies systematically publish optimistic news? Both of these questions will be deciding factors in ethanol's sustainability.

Comment on this article

Comments

[kkin365]

Good overview. I am wondering what role, if any, a Democratic win in congressional elections has upon ethanol stocks. omooc

[Sam Goodwin]

There's no question in my mind that democrats are pro-ethanol. That didn't use to be the case. At one time the word "ethanol" made people think large companies like ADM whose lobbying was rewarded by large ethanol subsidies. Now when people think of ethanol, they think about fighting global warming. (We can thank Al Gore.) They also think of reducing dependence on foreign oil. The truth is, ethanol doesn't have many enemies these days. Democrats like corn ethanol because they know it is the path to cellulosic ethanol, the holy grail. Everyone is getting in on the cellulosic ethanol frenzy... even the big oil companies. If you have visited sites like InvestInCellulosicEtha... lately, you will be amazed at the huge technological advances cellulosic ethanol is making these days.