Bloomberg News

Ethanol Strengthens Against Gasoline on Record-Low Inventories

June 17, 2013

Ethanol gained versus gasoline on concern that lower production of the biofuel will keep stockpiles near record lows.

The spread, or price difference, narrowed 4.56 cents to 35.11 cents a gallon on speculation that tighter corn supplies, the primary feedstock for ethanol production in the U.S., will curtail output of the biofuel. One bushel of the grain makes at least 2.75 gallons of ethanol.

“Ethanol traders are torn between a potentially tight domestic ethanol market this summer and imports that are scheduled to arrive over the next 60 days as plants are scheduled to go down,” Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York, said in a report today.

Denatured ethanol for July delivery increased 0.5 cent to $2.505 a gallon on the Chicago Board of Trade. Prices are up 14 percent this year.

Gasoline for July delivery decreased 4.06 cents, or 1.4 percent, to $2.8561 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Stockpiles of the biofuel in the week ended June 7 fell 2.6 percent to 16 million barrels, the lowest level in records going back to June 2010, a report from the Energy Information Administration showed June 12.

Ethanol Output

Production has averaged 825,000 barrels a day so far this year, down 9 percent from the same period a year earlier, data from the Energy Department’s analytical arm show.

The worst U.S. drought since the 1930s wilted corn crops last summer and forced ethanol producers to temper operations because the fuel was unprofitable to manufacture.

Corn for July delivery climbed 13.5 cents, or 2.1 percent, to $6.685 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 7 cents, down from 12 cents on June 14, data compiled by Bloomberg show.

Higher ethanol prices have led to increased imports of the biofuel.

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.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool on June 7, up from 89 percent the previous week, EIA said.

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.

Ethanol RINs

Corn-based ethanol RINs for 2013 rose 1 cent to 93 cents, at 3:48 p.m. data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 99.5 cents.

In cash market trading, ethanol in Chicago gained 7 cents to $2.58 a gallon, data compiled by Bloomberg show. In the U.S. Gulf, prices increased 3.5 cents to $2.645; on the West Coast the additive rose 3.5 cents to $2.84; and in New York the biofuel jumped 2 cents to $2.615 a gallon.

Chicago’s discount to New York Harbor narrowed 5 cents to 3.5 cents, the tightest since June 6, while the West Coast’s premium to U.S. Gulf was unchanged at 19.5 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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