Bloomberg News

Ethanol Weakens Against Gasoline by Most in Two Weeks on Glut

January 16, 2013

Ethanol weakened against gasoline by the most in two weeks after a government report showed a glut of the biofuel.

The spread expanded 1.48 cents, the most since Dec. 31, after an Energy Information Administration report showed stockpiles climbed 2.6 percent to 20.4 million barrels, the highest level in four weeks. Production fell to the lowest level since the Energy Department’s statistical arm began reporting data in June 2010.

“The inventory build with production down 5 percent was shocking,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

The grain-based additive was 37.84 cents below the price of gasoline, based on prompt-month contracts for both commodities. The spread was 36.36 cents yesterday.

Denatured ethanol for February delivery settled unchanged at $2.343 a gallon on the Chicago Board of Trade, snapping a seven-day streak of gains, the longest since January 2012. Prices have advanced 10 percent in the past year.

February-delivery gasoline rose 1.48 cents, or 0.6 percent, to $2.7214 a gallon on the New York Mercantile Exchange. The motor fuel advanced as refineries reduced operating rates last week, boosting speculation that seasonal maintenance will reduce inventories.

Corn for March delivery gained 0.75 cent to $7.3125 a bushel in Chicago. Prices have jumped 22 percent in the past year. One bushel makes at least 2.75 gallons of ethanol.

Producers’ Loss

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, unchanged from yesterday, according to data collected by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Ethanol producers have tempered output because of higher corn prices following a drought that withered crops.

A Jan. 11 Agriculture Department report showed corn stockpiles in the U.S. on Dec. 1 were 8.03 billion bushels, 17 percent less than a year earlier and the lowest in nine years for that date. The grain is the primary feedstock in making ethanol in the U.S.

Abengoa SA (ABG), a Spanish engineering and renewable energy company, said today it idled output at ethanol mills in York and Ravenna, Nebraska, until market conditions improve.

In cash market trading, ethanol was unchanged in the U.S. Gulf at $2.385 a gallon and in New York the biofuel increased 1 cent, or 0.4 percent, to $2.41, data compiled by Bloomberg show.

Ethanol in Chicago rose 1 cent to $2.31 a gallon and on the West Coast the additive slipped 1 cent to $2.44.

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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