Bloomberg News

Ethanol Strengthens Against Gasoline as Stocks Fall to Record

June 14, 2013

Ethanol’s discount to gasoline narrowed on concern stockpiles of the fuel aren’t adequate to meet demand.

The spread, or price difference, shrank 0.36 cent to 39.67 cents a gallon two days after an Energy Information Administration report showed inventories last week fell 2.6 percent to 16 million barrels, the lowest in records going back to June 2010 and as production lagged 3.9 percent below year-ago levels.

“We’ve got extremely low inventories and production hasn’t been all that great,” said Joshua Bailer, managing director of Next Generation Commodities, the biofuels division of Atlas Commodities LLC in Miami.

Denatured ethanol for July delivery gained 3.9 cents, or 1.6 percent, to $2.50 a gallon on the Chicago Board of Trade. Prices are up 14 percent this year.

Gasoline for July delivery advanced 3.54 cents, or 1.2 percent, to $2.8967 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 production has climbed 15 percent to 884,000 barrels a day last week from a record low 770,000 barrels a day in January, the Energy Department’s analytical arm said in the June 12 report.

That’s still down 8.2 percent from the record 963,000 barrels a day in December 2011, EIA data show.

Use Mandate

The U.S. is required to use 13.8 billion gallons of ethanol, or about 900,000 barrels a day, this year and 14.4 billion next year. Output has averaged 825,000 barrels a day, or 12.6 billion gallons on an annualized basis.

Each gallon of ethanol is assigned a tracking certificate known as a Renewable Identification Number, or RIN. A refiner can keep the credit to show compliance with the mandate, or trade it.

Corn-based ethanol RINs for 2013 climbed 1 cent to 90 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 96 cents.

Ethanol producers had reduced operations after the worst U.S. drought since the 1930s last summer damaged corn crops and boosted costs to make the biofuel.

Corn for July delivery climbed 11.5 cents, or 1.8 percent, to $6.55 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 12 cents, unchanged from yesterday.

Brazilian Imports

Bailer said the higher prices this year that are attracting Brazilian imports of the fuel may not be enough to replace the depleted inventories. Imports have averaged 17,000 barrels a day this year through June 7, up from 6,000 barrels a day during the same period in 2012, EIA data show.

Anhydrous fuel ethanol in Sao Paulo cost $2.33 a gallon last week, according to data compiled by Bloomberg, down from $2.65 in April.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool last week, up from 89 percent the previous week, EIA said.

In cash market trading, ethanol was unchanged in New York at $2.595 a gallon, down 1.5 cents to $2.51 in Chicago, up 0.5 cent to $2.61 on the Gulf Coast, and down 0.5 cent to $2.805 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf narrowed 1 cent to 19.5 cents, while Chicago’s discount to New York expanded 1.5 cents to 8.5 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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