Bloomberg News

Ethanol’s Discount to Gasoline Narrows on Below-Average Stocks

June 24, 2013

Ethanol’s discount to gasoline tightened to the narrowest in more than two weeks on below-average inventories for this time of year.

The spread, or price difference, contracted 0.11 cent to 29.66 cents a gallon, the least since June 5, as stockpiles of the fuel have remained near record-low seasonal levels throughout this year, data compiled by Bloomberg show. Inventories were down 22 percent in the week ended June 14 from a year earlier, Energy Information Administration data show.

“There’s good support in the market,” said Shawn McCambridge, senior grain analyst at Jefferies Bache LLC in Chicago. “Stocks have stayed steady around these lower levels and that’s giving support.”

Denatured ethanol for July delivery slipped 2.3 cents, or 0.9 percent, to $2.441 a gallon on the Chicago Board of Trade. Prices are up 11 percent this year.

Gasoline for July delivery sank 2.41 cents, or 0.9 percent, to $2.7376 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

McCambridge said ethanol prices were buoyed by a U.S. Supreme Court decision today that left intact Environmental Protection Agency rules allowing higher concentrations of corn-based ethanol in gasoline, turning away appeals from the grocery, auto and oil industries.

“That may have given us a little psychological support,” McCambridge said. “It’s giving confirmation, just saying that’s not something we’ll have to worry about hanging over the market.”

EPA Rule

The EPA in 2011 approved blends of as much as 15 percent of ethanol in gasoline, a formula known as E15, for cars made for the model year 2001 and later.

“Now that the final word has been issued, I hope that oil companies will begin to work with biofuel producers to help bring new blends into the marketplace that allow for consumer choice and savings,” said Tom Buis, chief executive officer of Growth Energy, a renewable fuels trade group.

Ethanol-blended gasoline made up about 94 percent of the total U.S. gasoline pool in the week ended June 14, data from the Energy Department’s analytical arm show.

Corn for July delivery decreased 8.5 cents to $6.5325 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 6 cents, up 1 cent from June 21, data compiled by Bloomberg show.

Ethanol Mandate

A 2007 energy law requires the U.S. to use 13.8 billion gallons of ethanol this year. The EPA tracks compliance using Renewable Identification Numbers, or RINs, serial numbers attached to each gallon of biofuel. Refiners can keep the credits for submission or trade them.

Corn-based ethanol RINs fell 2 cents to 93 cents, while advanced RINs, which cover biodiesel or Brazilian sugarcane-based fuel, were unchanged at $1.03, according to data compiled by Bloomberg.

Production of the biofuel has been below average levels throughout this year, data compiled by Bloomberg show.

Output fell for two consecutive weeks to 873,000 barrels a day in the week ended June 14, down 3 percent from a year earlier and the first back-to-back weekly decline since March, EIA data show.

Higher prices for the fuel have attracted imports. Foreign purchases of ethanol reached 65,000 barrels a day in the week ended June 14, EIA data show, the highest since January.

Anhydrous ethanol in Sao Paulo cost $2.29 a gallon as of June 14, 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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