Bloomberg News

Ethanol Advances on Speculation Lower Prices to Encourage Demand

September 29, 2011

Sept. 29 (Bloomberg) -- Ethanol futures gained in Chicago on speculation a 13 percent drop in prices this month will boost demand for the fuel to be blended into gasoline.

Futures rose for the third time this week amid optimism that ethanol’s 7.22-cent discount to gasoline will encourage refiners to use more of the biofuel to take advantage of the spread between the two while pocketing the 45-cent tax credit they receive for each gallon of the additive mixed with the motor fuel. Ethanol traded at a 5.24-cent premium to gasoline as recently as Sept. 5.

“ We’re kind of building a little bit of support after the massive sell-off,” said Matt Janney, a broker at Citigroup Global Markets Inc. in Chicago. “We may have broken the market to a point where demand comes back in.”

Denatured ethanol for October delivery rose 1.3 cents, or 0.5 percent, to $2.547 a gallon on the Chicago Board of Trade. Futures, down 13 percent in September, are headed for their largest monthly drop since October 2008 and consecutive quarterly losses.

In cash market trading, ethanol was unchanged in New York at $2.715 a gallon and in the U.S. Gulf at $2.605, according to data compiled by Bloomberg.

Ethanol in Chicago dropped 2.5 cents, or 1 percent, to $2.55 a gallon and on the West Coast the biofuel increased 1.5 cents, or 0.6 percent, to $2.75.

--Editors: Richard Stubbe, Bill Banker

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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