Bloomberg News

Ethanol Rises to One-Week High as Use Increases and Stocks Fall

November 08, 2012

Ethanol rose to the highest price in a week after the Energy Department said refiners used more of the fuel last week, easing a supply glut.

Prices gained after the Energy Department said stockpiles fell 5.6 percent to 18.1 million barrels in the week ended Nov. 2, the steepest drop since August 2010. Ethanol-blended gasoline made up 92 percent of total U.S. gasoline consumption, up from 91 percent the previous week.

“The big number that came out this week was the stocks report,” said Jeff DeReamer, an ethanol broker at ICAP Energy in Lexington, Kentucky. “That was a pretty significant drop. Simple math says that use went up and they’re blending more.”

Denatured ethanol for December delivery rose 2.2 cents, or 0.9 percent, to $2.366 a gallon on the Chicago Board of Trade, the highest price since Nov. 1. Futures have jumped 7.4 percent this year.

In cash market trading ethanol in New York added 1.5 cents, or 0.6 percent, to $2.47 a gallon while the fuel climbed 1 cent to $2.35 in Chicago, data compiled by Bloomberg show.

Ethanol on the West Coast advanced 2.5 cents, or 1 percent, to $2.52 a gallon and in the U.S. Gulf the biofuel slipped 0.5 cent to $2.415.

Producers of the fuel, including Valero Energy Corp. (VLO:US) and Biofuels Energy Corp. (BIOF:US), have tempered output and in some cases shut plants as they deal with unprofitable margins for making it. Prices for corn, the primary ingredient in ethanol in the U.S., rose after the worst drought since the 1950s shrank crops.

Ethanol Production

Ethanol production in the U.S. may fall 5.5 percent this year to an average of 860,000 barrels a day, the Energy Department said Nov. 6 in its Short Term Energy Outlook.

Corn for December delivery fell 3 cents, or 0.4 percent, to $7.4125 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The drop in corn trimmed the loss from distilling the grain into ethanol. Based on December contracts for the two, producers are losing about 33 cents on each gallon of the biofuel made, down from 37 cents yesterday, data compiled by Bloomberg show.

Ethanol also gained before the U.S. Agriculture Department’s World Agricultural Supply and Demand Estimates report to be released at 8:30 a.m. tomorrow in Washington.

The 2012 U.S. corn harvest will total 10.71 billion bushels, the lowest level in six years, the department said Oct. 11, Of that, 42 percent was expected go toward ethanol.

Gasoline for December delivery rose 1.84 cents, or 0.7 percent, to $2.6073 a gallon in New York. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol’s discount to the motor fuel narrowed to 24.13 cents from 24.49 cents yesterday, diminishing the biofuel’s appeal for refiners to use more in an effort to pocket the spread between the two. Gasoline traded at a premium of 99.8 cents to ethanol as recently as Sept. 28.

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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Companies Mentioned

  • VLO
    (Valero Energy Corp)
    • $50.29 USD
    • 0.50
    • 0.99%
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