Bloomberg News

Ethanol Strengthens to Gasoline as EPA Proposes Targets

January 31, 2013

Ethanol strengthened against gasoline for the first time in almost two weeks after the Obama administration reaffirmed the nation’s renewable fuel standards and as plant shutdowns reduced output to record levels.

The spread narrowed 1.49 cents to 56.78 cents a gallon a day after the Environmental Protection Agency proposed rules to raise the country’s renewable fuel use to 16.55 billion gallons from 15.2 billion in 2012. A 2007 energy law requires the use of 36 billion gallons of biofuels by 2022.

“It seemed to put the market into a buying frenzy, until people realized” that it was expected, said Ian Jackson, a trader at SCB & Associates LLC in Chicago. “It was a little flash in the pan.”

Denatured ethanol for February delivery rose 0.2 cent to $2.458 a gallon on the Chicago Board of Trade, the highest price since Oct. 11. Futures advanced 12 percent in January, the first monthly gain since October and the biggest since July.

Gasoline for February delivery slumped 1.29 cents, or 0.4 percent, to $3.0258 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

The discount of the grain-based additive to gasoline contracted for the first time since Jan. 18 and snapped ethanol’s longest streak of losses versus the motor fuel since February 2010.

Under the EPA proposal, 9.6 percent of all fuel used this year will come from renewable sources.

Production Slips

Ethanol also rose on shrinking production. The Energy Information Administration said output fell to 770,000 barrels a day last week, the least since the Energy Department’s analytical division began tracking weekly data in June 2010.

“The production numbers we’ve been seeing the last few weeks have been really poor and we’re starting to see that affect the market,” said Julie Ward, assistant vice president at R.J. O’Brien & Associates, a broker in Des Moines, Iowa.

Eighteen ethanol plants have been idled since June as the worst drought since the 1930s baked corn crops and raised costs for producers, said Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association, a Washington-based trade group.

Corn for March delivery added 0.25 cent to $7.405 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts, producers are losing 23 cents on each gallon of the fuel, up from 22 cents yesterday, according to data compiled 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.

Brazil Ethanol

The fuel also strengthened against gasoline after Brazil, which uses sugarcane as a feedstock, said yesterday that it will increase its ethanol mix in gasoline to 25 percent in May from 20 percent, Ward said.

“That just might have a psychological effect,” she said. “Brazil’s been bringing in a lot and maybe the market is having a knee-jerk reaction.”

Spot ethanol in Sao Paulo cost $2.13 a gallon in the week ended Jan. 25, data compiled by Bloomberg show, about 13 percent cheaper than today’s U.S. futures price.

The country was the primary exporter of ethanol to the U.S. through the first 10 months of 2012, the most recent EIA data shows.

Demand for ethanol in the U.S. last week was lower than it was a year ago. Ethanol-blended gasoline made up 87 percent of the total U.S. gasoline pool in the week ended Jan. 25, down from 90 percent a year earlier, EIA data showed.

Ethanol advanced in most spot market regions. The fuel rose 1.5 cents to $2.565 a gallon in New York Harbor, 4 cents to $2.45 in Chicago and 3 cents to $2.505 on the Gulf Coast. It was unchanged at $2.615 on the West Coast.

The value of Renewable Identification Numbers, known as RINs, rose 27 percent to 30.5 cents for corn-based ethanol, data compiled by Bloomberg show. The advanced forms climbed 1.5 cents, or 3.1 percent, to 50 cents. The EPA also proposed changes intended to boost confidence in trading of RINs.

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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