Bloomberg News

Ethanol’s Discount to Gasoline Swells to Six-Week High on Output

June 07, 2013

Ethanol’s discount to gasoline expanded to a six-week high on increased production of the renewable fuel.

The spread, or price difference, widened 0.26 cent to 36.55 cents a gallon, the steepest since April 26, as a June 5 Energy Information Administration report showed production climbed to the highest level in more than 11 months and demand for the additive slumped to the least since February.

“It just seems like a lot of gallons have showed up,” said Jim Damask, a broker at StarFuels Inc. in Jupiter, Florida. “We’re seeing a lot of physical for sale and not a lot of buyers.”

Denatured ethanol for July delivery added 1.8 cents, or 0.7 percent, to $2.506 a gallon on the Chicago Board of Trade. Prices have gained 14 percent this year.

Gasoline for July delivery rose 2.06 cents, or 0.7 percent, to $2.8715 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool last week, the least since Feb. 22.

Output climbed 2.6 percent to 885,000 barrels a day, the biggest gain since April 5 and the highest level since June 15, the Energy Department’s analytical arm said.

Stockpile Gain

The higher production rates helped lift stockpiles of the fuel from the lowest amount since Oct. 15, 2010. Inventories rose 2.3 percent to 16.4 million barrels after five weeks of declines, the EIA said.

Ethanol is made mostly from corn in the U.S. and one bushel of the grain makes at least 2.75 gallons of the fuel. Production returns have been above break-even since April 1, after a stretch of losses forced companies to temper output.

Corn for July delivery rose 3 cents to $6.6625 a bushel in Chicago. The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, was 8 cents, unchanged from yesterday, data compiled by Bloomberg show.

Refiners are required to use 13.8 billion gallons of the fuel this year under a 2007 energy law known as the Renewable Fuels Standard. Compliance is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel. Once ethanol is blended with petroleum companies can keep the RIN to show adherence to the law or trade it to another party.

RIN Prices

Corn-based ethanol RINs for 2013 was unchanged at 95 cents at 3:48 p.m. New York time. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 0.5 cent to $1.055.

Imports have averaged 18,000 barrels a day so far this year, up from 6,000 barrels a day during the same period in 2012, EIA data show.

Anhydrous ethanol in Sao Paulo cost $2.33 a gallon last week, the lowest price since Nov. 23 and about 7 percent cheaper than today’s U.S. settlement, data compiled by Bloomberg show.

In cash market trading, ethanol slumped 7 cents in Chicago to $2.61 a gallon; in the U.S. Gulf the fuel sank 3.5 cents to $2.725; in New York the additive slipped 0.5 cent to $2.71; and on the West Coast the biofuel lost 0.5 cent to $2.83 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf expanded 3 cents to 10.5 cents, the widest level since May 15 and Chicago’s discount to New York Harbor swelled 6.5 cents to 10 cents.

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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