Bloomberg News

Ethanol Weakens Against Gasoline as Oversupply Limits Gains

February 08, 2013

Ethanol weakened against gasoline as excess supplies of the biofuel limited price gains.

The spread expanded 5.49 cents to 64.68 cents a gallon, the widest since Sept. 28. Gasoline jumped more than ethanol on speculation that blizzard conditions in the population-dense Northeast will affect supplies. A Feb. 6 U.S. Energy Information Administration report showed ethanol stockpiles at 20 million barrels, up 13 percent since early November.

“Supply is still a concern,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “Stockpiles are still very high by historical standards. The situation is brightening, but it’s going to take a while to see substantial gains.”

Denatured ethanol for March delivery rose 0.4 cent to $2.412 a gallon on the Chicago Board of Trade. Prices have advanced 10 percent this year and 8.5 percent from a year ago.

Gasoline for March delivery gained 5.89 cents, or 2 percent, to $3.0588 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Kitt said that while ethanol’s discount to the motor fuel should spur more blending, total fuel consumption is limited during the winter season as fewer drivers take to the road and travel shorter distances.

Gasoline demand fell 1 percent last week to a three-week low of 8.42 million barrels a day, according to the EIA, the Energy Department’s statistical arm.

Gasoline Mix

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool, down from 91 percent a year earlier.

Producers of the fuel have struggled to turn a profit because the lower consumption hasn’t been enough to circumvent higher corn prices caused by drought in the Midwest.

Corn for March delivery decreased 1.75 cents to $7.09 a bushel in Chicago, the lowest price since Jan. 11. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, or the profit that can be made from turning a bushel of corn into ethanol, was minus 17 cents a gallon, up from minus 18 cents yesterday and 21 cents a week ago, data compiled by Bloomberg show.

A U.S. Agriculture Department report today showed the corn inventories before the next harvest will be 5 percent larger than forecast a month ago.

Inventories will total 632 million bushels on Aug. 31, up from 602 million forecast in January and less than the 989 million bushels a year earlier.

Corn Demand

Ethanol will consume about 42 percent of the 10.78 billion bushels of corn in this year’s harvest, the USDA said.

At least 19 plants have been idled since June because of production costs and the supply glut, according to the Renewable Fuels Association, a Washington-based trade group.

Ethanol production last week averaged 774,000 barrels a day, up from 770,000 a week earlier and the lowest level since the EIA began tracking weekly data for the biofuel in June 2010.

In spot market trading, ethanol in New York Harbor at $2.53 a gallon was 11.87 cents more expensive than in Chicago, according to data compiled by Bloomberg. Ethanol on the Chicago spot market has traded at about an 8.5-cent discount to New York in the past year. Ethanol on the West Coast fetched $2.60 a gallon. The price was $2.46 in the U.S. Gulf.

The U.S. last week didn’t import the fuel for the first time since Sept. 28, EIA data show.

Spot ethanol in Sao Paulo, where ethanol is made from sugarcane, cost $2.29 a gallon in the week ended today, up from $2.21 a gallon the previous week, according to data compiled by Bloomberg.

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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