Bloomberg News

Ethanol Outpaces Gasoline as Below-Average Output Buoys Prices

March 18, 2013

Ethanol outpaced gasoline on speculation that low production rates will stem price declines, tightening its discount to the motor fuel to the lowest level in more than two weeks.

The price difference, or spread, narrowed 3.69 cents to 49.79 cents a gallon. Production averaged 797,000 barrels a day in the week ended March 8, according to the Energy Information Administration, down 11 percent from a year earlier and the lowest level for this time of year in records begun in June 2010.

“Production in the biofuel markets isn’t rebounding as much as we thought,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago.

Denatured ethanol for April delivery rose 0.2 cent to settle at $2.631 a gallon on the Chicago Board of Trade. Prices have gained 20 percent this year.

Gasoline futures for April delivery declined 3.49 cents, or 1.1 percent, to $3.1289 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.

Companies reduced output after production costs soared because drought in the Midwest baked crops and reduced yields.

Corn for May delivery advanced 3 cents, or 0.4 percent, to $7.20 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Crush Spread

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 3 cents a gallon, unchanged from March 15. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

That compares to minus 35 cents a gallon as recently as Dec. 31.

Valero Energy Corp. (VLO:US), the third-biggest U.S. ethanol producer, has resumed output at its plant in Bloomingburg, Ohio, because returns have improved and plans to restart operations at its Linden, Indiana, mill “in the next couple of weeks,” Bill Day, a company spokesman said in a March 15 telephone interview.

Stockpiles of the biofuel slid a for record sixth straight week to 18.7 million barrels, the least since Nov. 23 and 15 percent below a year earlier, data from the Energy Department’s analytical arm showed.

Ethanol-blended gasoline made up about 93 percent of the total U.S. gasoline pool last week, down from 94 percent the previous week, EIA data show.

No Imports

The U.S. didn’t import any of the fuel for a second week, the first time that’s happened since June, the March 13 EIA report showed.

Spot ethanol in Sao Paulo fetched $2.37 a gallon last week, according to data compiled by Bloomberg.

In cash market trading, ethanol increased 1.5 cents to $2.755 a gallon in New York, 1.5 cents to $2.645 in Chicago, 1 cent to $2.70 a gallon on the Gulf Coast and 0.5 cent to $2.865 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf narrowed to 16.5 cents from 17 cents. Chicago’s discount to New York was unchanged at 11 cents.

The value of Renewable Identification Numbers, or RINs, that refiners submit to the Environmental Protection Agency to show compliance with the U.S. biofuels law, for the corn-based ethanol variety rose 1.5 cents, or 2 percent, to 77 cents today, according to data compiled by Bloomberg.

Advanced RINs jumped 2 cents, or 2.5 percent, to 83 cents. Both grades of the certificates reached record on March 8.

The supply of the corn-based RIN could be depleted by the middle of next year if gasoline demand remains stagnant and the U.S. mandate calls for higher amounts of biofuel to be used, Sam Margolin, an analyst at Cowen Securities LLC in New York wrote in a report today.

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)
    • $47.43 USD
    • -0.94
    • -1.98%
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