Bloomberg News

Ethanol’s Discount to Gasoline Swells as Imports Boost Supply

June 19, 2013

Ethanol’s discount to gasoline expanded to the widest differential in more than two months after a government report signaled that higher imports of the fuel are replenishing a record-low supply.

The spread, or price difference, weakened 2.8 cents to 40.74 cents a gallon after the Energy Information Administration said U.S. imports of the biofuel jumped to 65,000 barrels a day last week from none a week earlier. Stockpiles rose for the second time since April, one week after dropping to an all-time low.

“The recent arrival of Brazilian material into Florida has helped relieve some of the issues associated with the record-low inventory situation the industry was facing” along the East Coast, said Michael Breitenbach, a broker and director of research at Blue Ocean Brokerage LLC in New York.

Denatured ethanol for July delivery fell 1.5 cents, or 0.6 percent, to $2.485 a gallon on the Chicago Board of Trade. Prices are up 13 percent this year.

Gasoline for July delivery advanced 1.3 cents, or 0.5 percent, to $2.8924 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Imports reached the highest level since January, the EIA, the Energy Department’s analytical arm, said today.

“Whether these supplies will continue in sufficient quantities as we move into July and August is a question yet to be decided,” Breitenbach said.

Brazilian Competition

Brazil, which uses sugarcane to make ethanol, is the largest supplier of the fuel to the U.S. Anhydrous ethanol in Sao Paulo cost $2.29 a gallon as of June 14, data compiled by Bloomberg show, the cheapest since Nov. 9.

Ethanol production fell 1.2 percent to 873,000 barrels a day, the least since May 24, the EIA report showed. That’s down 3 percent from a year earlier.

Stockpiles in the week ended June 14 increased 2.9 percent to 16.5 million barrels, the highest level in six weeks. Inventories as of June 7 were 16 million barrels, the lowest in records going back to June 2010, EIA data show.

Output of the fuel has been below average this year as the industry struggles to rebound to rates prior to last summer’s U.S. drought, which pushed corn prices to a record and eroded profits to make ethanol.

Corn Prices

Corn for July delivery rose 9 cents to $6.8225 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 minus 1 cent, compared with 5 cents yesterday, data compiled by Bloomberg show.

A 2007 energy law requires the U.S. to use 13.8 billion gallons of ethanol this year. The government and refiners use tracking certificates, called Renewable Identification Numbers, or RINs, which are attached to each gallon of biofuel to track compliance. They can also be traded.

Corn-based ethanol RINs today rose 1 cent to 91 cents and advanced RINs, which cover Brazilian sugarcane-based ethanol and biodiesel, gained 2 cents to 99 cents.

In cash market trading, ethanol was unchanged in New York at $2.605 a gallon, data compiled by Bloomberg show. The fuel lost 2.5 cents to $2.545 in Chicago, 0.5 cent to $2.615 on the Gulf Coast and 1 cent to $2.83 a gallon on the West Coast.

West Coast ethanol’s premium to the Gulf Coast narrowed 0.5 cent to 21.5 cents while Chicago’s discount to New York Harbor swelled 2.5 cents to 6 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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