Bloomberg News

Ethanol Weakens Against Gasoline on Signs of Lower Consumption

July 02, 2013

Ethanol weakened against gasoline on concern that record-high seasonal stockpiles of the motor fuel will diminish consumption of the additive.

The spread, or price difference, widened 5.74 cents to 47.23 cents a gallon after gasoline stockpiles in the week ended June 21 jumped to the highest level since March 1, U.S. Energy Information Administration data show. Ethanol, with inventories at the lowest for the time of year in data going back to 2010, is blended with the motor fuel to stretch supply and meet federal mandates.

“We’re low on ethanol stocks, but we’re high in gasoline stocks,” said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa.

Denatured ethanol for August delivery fell 1.2 cents, or 0.5 percent, to $2.311 a gallon on the Chicago Board of Trade. The July contract, which expires tomorrow, was unchanged at $2.41. Prices have gained 10 percent this year.

Gasoline for August delivery gained 4.54 cents, or 1.7 percent, to $2.7833 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 is produced from corn in the U.S., with one bushel of the grain making at least 2.75 gallons of the renewable fuel.

Corn Supply

Farmers planted 97.4 million acres of corn, the most since 1936, the Agriculture Department said June 28, as they seek to rebound from last summer’s U.S. drought that ravaged crops and forced ethanol plants to temper operations in the face of higher costs.

The prospect of more corn and lower ethanol production costs is lowering prices, said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York.

“Corn continues its weakness in new crop and is putting substantial pressure on ethanol prices down the curve,” he said.

Corn for July delivery climbed 17.25 cents, or 2.6 percent, to $6.7275 a bushel in Chicago. The more actively traded December contract advanced 1.5 cents to $5.0275 a bushel.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, was minus 5 cents, down from 3 cents yesterday and compared with minus 35 cents on Dec. 31, data compiled by Bloomberg show.

RINs Prices

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.

Corn-based ethanol RINs fell 3 cents to $1, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, declined 1 cent to $1.08, according to data compiled by Bloomberg.

In cash market trading, ethanol decreased 4 cents to $2.47 a gallon in New York, 3 cents to $2.40 in Chicago, 4 cents to $2.47 on the Gulf Coast and 3 cents to $2.62 a gallon on the West Coast, data compiled by Bloomberg show.

New York Harbor’s premium over Chicago shrank by 1 cent to 7 cents, while the Gulf Coast’s discount to New York Harbor expanded 1 cent to 15 cents, the widest since June 24.

Ethanol production gained 15 percent to 885,000 barrels a day in the week ended June 21 from an all-time low in January, data from the EIA, the Energy Department’s research arm, show.

Inventories that week fell 1 percent to 16.3 million barrels, 22 percent below a year earlier.

Ethanol imports fell 42 percent to 38,000 barrels a day from the previous week, the EIA said.

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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