Bloomberg News

Ethanol Tumbles to Eight-Month Low on Slack Blending Demand

November 25, 2011

Nov. 25 (Bloomberg) -- Ethanol futures tumbled to the lowest price in more than eight months on signs of lower blending demand.

Futures dropped two days after an Energy Department report showed stockpiles climbed to a 12-week high last week while production of conventional gasoline blended with ethanol fell 1.4 percent to 5.13 million barrels a day.

“You’re seeing the blender back away from ethanol,” said Jerrod Kitt, an analyst at the Linn Group in Chicago. “They’re not as aggressive. The really firm physical markets are starting to scare away domestic demand.”

Denatured ethanol for December delivery sank 6.3 cents, or 2.5 percent, to $2.434 a gallon on the Chicago Board of Trade, the lowest price since March 17. The futures have climbed 2.4 percent this year.

Ethanol’s 1.49-cent discount to gasoline has tempered refiner interest in using more of the fuel to capture the spread between the two, in addition to the 45-cent tax credit provided for each gallon of the biofuel mixed into the petroleum product, Kitt said.

The alternative fuel has traded at a 22-cent discount to gasoline on average in the past year.

Gasoline for December delivery lost 6.88 cents, or 2.7 percent, to $2.4489 a gallon. Gasoline declined 1.2 percent this week, the sixth consecutive weekly loss. The contract includes reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

--Editors: Richard Stubbe, Charlotte Porter

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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