Bloomberg News

Ethanol Drops Versus Gasoline as Output Climbs to 11-Month High

May 23, 2013

Ethanol’s discount to gasoline widened a day after a government report showed production of the biofuel climbed to the highest level in 11 months.

The spread, or price difference, expanded 2.77 cents to 20.11 cents a gallon, a day after an Energy Information Administration report showed production last week gained 2.1 percent to 875,000 barrels a day, the most since June 22, aided by cheaper manufacturing costs.

“The production margin has been improving, so it was expected that we would see some pick-up in output,” said Beatriz Pupo, a Montreal-based analyst at Kingsman SA, a sugar and biofuels research firm in Lausanne, Switzerland.

Denatured ethanol for June delivery fell 1.9 cents, or 0.7 percent, to $2.627 a gallon on the Chicago Board of Trade. Futures have gained 23 percent in the past year.

Gasoline for June delivery gained 0.87 cent, or 0.3 percent, to $2.8281 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The biofuel also declined on speculation that ethanol’s narrowing discount to gasoline this year will curb refiner demand, said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida.

Ethanol traded as much as 78.76 cents cheaper than gasoline as recently as Feb. 14.

“It matters,” Damask said. “It’s the blending economics for the refiner.”

Gasoline Supply

Ethanol-blended gasoline made up about 94 percent of the total U.S. gasoline supply, down from 95 percent the previous week and the smallest amount since April 19, EIA data show.

Corn for July delivery rose 3.5 cents, or 0.5 percent, to $6.62 a bushel in Chicago.

The corn crush spread for July was 9 cents, down from 12 cents yesterday and compared with minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Corn-based ethanol Renewable Identification Numbers, or RINs, for 2013 fell 1.2 percent to 88.13 cents as of 4:37 p.m. New York time, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, rose 0.2 percent to 98.36 cents.

Stockpile Declines

Below-average production this year has helped deplete stockpiles of the fuel. Inventories last week fell 1.5 percent to 16.2 million barrels, the lowest level since Nov. 5, 2010, a report from the EIA, the Energy Department’s analytical arm, showed yesterday.

The U.S. hasn’t imported any ethanol since April 19, EIA data show, the longest streak since March 2012.

Pupo said that may change as cheaper sugar makes Brazilian supplies of the biofuel more competitive.

Anhydrous ethanol in Sao Paulo cost $2.53 a gallon last week, down 2.1 percent from the week ended May 10, data compiled by Bloomberg show.

In cash market trading, ethanol in the U.S. Gulf increased 3 cents to $2.75 a gallon and in Chicago climbed 1.5 cents to $2.64, according to data compiled by Bloomberg. In New York the additive slipped 2 cents to $2.74 and on the West Coast prices dropped 1.5 cents to $2.77 a gallon.

West Coast ethanol’s premium to the Gulf shrank 4.5 cents to 2 cents, while Chicago’s discount to New York Harbor narrowed 3.5 cents to 10 cents, the lowest level since May 15.

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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