Bloomberg News

Ethanol’s Discount to Gasoline Narrows on Signs of Fed Pullback

June 20, 2013

Ethanol’s discount to gasoline narrowed as the motor fuel plunged the most since April on concern that the Federal Reserve will reduce economic stimulus.

The spread, or price difference, tightened 7.62 cents to 33.12 cents a gallon, a day after Fed Chairman Ben S. Bernanke indicated the central bank may begin reducing bond buying this year should risks to the economy abate.

“Global markets are in risk-off mode” following Bernanke’s comments, said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York.

Denatured ethanol for July delivery fell 2.9 cents, or 1.2 percent, to $2.456 a gallon on the Chicago Board of Trade. Prices are up 12 percent this year.

Gasoline for July delivery tumbled 10.52 cents, or 3.6 percent, to $2.7872 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

U.S. refiners must use 13.8 billion gallons of ethanol this year under a 2007 energy law known as the Renewable Fuels Standard, or RFS.

Output has averaged 827,000 barrels a day so far this year through June 14, or about 12.7 billion gallons on an annualized basis, data from the Energy Information Administration, the Energy Department’s analytical arm, showed yesterday.

Production Cut

Companies across the Midwest tempered ethanol operations after last year’s U.S. drought, the worst since the 1930s, lifted corn prices and eroded returns to make the biofuel.

Corn for July delivery decreased 9 cents to $6.7325 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 unchanged at 1 cent, data compiled by Bloomberg show.

Compliance with the ethanol blending law is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel that refiners can submit to the government or trade.

Corn-based ethanol RINs rose 2 cents to 93 cents and advanced RINs, which cover Brazilian sugarcane-based ethanol and biodiesel, climbed 3 cents to $1.02.

Lower production of the fuel has led to record low seasonal supply of the fuel, data compiled by Bloomberg show. Inventories rose 2.9 percent to 16.5 million barrels last week, according to EIA data, 22 percent lower than a year ago.

Spot Prices

In cash market trading, ethanol in Chicago sank 10.5 cents to $2.44 a gallon; on the West Coast prices decreased 8.5 cents to $2.745; in the U.S. Gulf the additive lost 7.5 cents to $2.54 and in New York the biofuel dropped 6.5 cents to $2.54 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium over the U.S. Gulf narrowed 1 cent to 20.5 cents, while Chicago’s discount to New York expanded 4 cents to 10 cents.

The U.S. imported 65,000 barrels a day of ethanol last week, the first time the country has made foreign purchases of the fuel since May 24, EIA data show.

Anhydrous ethanol in Sao Paulo cost $2.29 a gallon last week, the lowest price since Nov. 9, data compiled by Bloomberg show.

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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