Bloomberg News

Ethanol Weakens Against Gasoline as Output Recovers From Drought

June 27, 2013

Ethanol weakened against gasoline with production recovering from last year’s drought.

The spread, or price difference, widened 0.9 cent to 27.36 cents a gallon, a day after the Energy Information Administration said production last week rose to 885,000 barrels a day, equaling the most since June 15, 2012. Run rates are above-average for this time of year, data compiled by Bloomberg show.

“Ethanol production is on the upswing,” said Dan Flynn, a trader at Price Futures Group in Chicago.

Denatured ethanol for July delivery increased 0.3 cent to $2.469 a gallon on the Chicago Board of Trade. Prices are up 13 percent this year.

Gasoline for July delivery rose 1.2 cents, or 0.4 percent, to $2.7426 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 exceeded 850,000 barrels a day for seven weeks in a row, helping stockpiles rebound 1.9 percent to 16.3 million barrels from an all-time low on June 7. Production sank to 770,000 barrels a day in the week of Jan. 25, the lowest level since the EIA began weekly records in 2010.

Compliance with a law that requires refiners to use 13.8 billion gallons of ethanol in gasoline is tracked by Renewable Identification Numbers, or RINs. Companies can submit the credits to the government or trade them.

Ethanol RINs

Corn-based ethanol RINs rose 1 cent to 95 cents while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol decreased 1 cent to $1.01, data compiled by Bloomberg show.

Ethanol is made from corn in the U.S., where the Agriculture Department estimated June 12 that the harvest for the grain will rise 30 percent to a record 14.005 billion bushels this year.

One bushel of corn makes at least 2.75 gallons of the renewable fuel.

Corn for July delivery added 2.75 cents, or 0.4 percent, to $6.6725 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 4 cents, down from 5 cents yesterday, data compiled by Bloomberg show.

While the U.S. uses corn to make the biofuel, Brazil, the world’s second-biggest producer, uses sugarcane.

Imports have averaged 20,000 barrels a day through June 21, EIA data show, compared to 7,000 barrels a day during the same period in 2012.

Brazilian Ethanol

Anhydrous ethanol in Sao Paulo cost $2.25 a gallon last week, the cheapest since Nov. 9, data compiled by Bloomberg show. Brazil supplied 72 percent of U.S. ethanol imports in April, EIA said in a report today.

Ethanol imports fell 31 percent to 975,000 barrels in April from March, the lowest since November 2010, the report showed.

In cash market trading, ethanol in Chicago increased 4 cents to $2.50 a gallon; in the U.S. Gulf prices gained 2 cents to $2.565; in New York the additive rose 1.5 cents to $2.54 and on the West Coast the biofuel lost 2.5 cents to $2.665, data compiled by Bloomberg show.

West Coast ethanol’s premium over the U.S. Gulf narrowed 4.5 cents to 10 cents while Chicago’s discount to New York Harbor slimmed 2.5 cents to 4 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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