Bloomberg News

Ethanol’s Discount to Gasoline Expands on Refinery Maintenance

March 05, 2013

Ethanol weakened against gasoline as prices for the motor fuel gained on speculation seasonal refinery maintenance will limit supply.

The spread, comparing front-month contracts, expanded 1.58 cents to 70.31 cents a gallon at 3:02 p.m. New York time. Gasoline stockpiles in the U.S. probably fell 1 million barrels last week, according to the median of 12 analysts in a survey by Bloomberg.

“It’s the time of year where you get some preparation before the summer driving season,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for April delivery rose 2.6 cents, or 1.1 percent, to $2.437 a gallon on the Chicago Board of Trade. The March futures contract, which expired today, increased 2.6 cents to $2.43.

Gasoline futures for April delivery advanced 4.99 cents, or 1.6 percent, to settle at $3.1482 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Kitt said as the refineries return from maintenance ethanol demand should increase.

“That’s more opportunities to blend ethanol,” he said.

Ethanol-blended gasoline made up 88 percent of the total U.S. gasoline supply in the week ended Feb. 22, down from about 90 percent the previous week and the lowest level since Jan. 25, according to the U.S. Energy Information Administration.

Production Decline

Companies have reduced ethanol production 16 percent to 812,000 barrels a day in the week ended Feb. 22 from a record in December 2011 as higher corn costs eroded profit, according to the EIA, the Energy Department’s analytical arm.

Supply of the biofuel has fallen four consecutive weeks to 19.4 million barrels, the lowest level since Nov. 30, the data show.

Corn for March delivery increased 9 cents, or 1.2 percent, to $7.32 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol and based on March contracts, was minus 23 cents, compared with minus 23 cents yesterday and minus 14 cents on Feb. 12. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Kitt said imports of the fuel from Brazil will probably slow over the next month as the country starts its sugarcane harvest.

Brazilian Price

Spot ethanol in Sao Paulo cost $2.42 a gallon last week, according to data compiled by Bloomberg.

Brazil is the largest supplier of ethanol to the U.S. and the country uses sugarcane to make the fuel.

Ethanol imports averaged 32,000 barrels a day in the week ended Feb. 22, the highest level since Jan. 18, EIA data show, and compared to none a year ago.

In cash market trading, ethanol on the West Coast was unchanged at $2.62 a gallon, according to data compiled by Bloomberg. In the U.S. Gulf, the additive climbed 3 cents to $2.49, in New York the biofuel gained 0.5 cent to $2.55 and in Chicago, the fuel jumped 3 cents to $2.43 a gallon.

West Coast ethanol’s premium to the Gulf weakened to 13 cents from 16 cents yesterday, while Chicago’s discount to New York tightened to 12 cents from 14.5 cents.

Ethanol Mandate

U.S. refiners are required to use 13.8 billion gallons of ethanol this year and 14.4 billion gallons next year.

Speculation about the likelihood of meeting the production and consumption targets has raised the value of Renewable Identification Numbers for corn-based ethanol to a record, Kitt said.

RINs are used to help the Environmental Protection Agency track whether refiners are meeting the federal biofuel-use mandates and they can purchase the credits in lieu of physically blending ethanol.

The value of corn-ethanol based RINs yesterday rose to a record 73.5 cents from 62.5 on March 1, data compiled by Bloomberg show.

Advanced RINs, which include biodiesel and Brazilian-made ethanol, jumped to a record 79.5 cents from 72 cents on March 1.

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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