Bloomberg News

Ethanol’s Discount to Gasoline Swells as Oil Surges on Egypt

July 03, 2013

Ethanol’s discount to gasoline swelled as the motor fuel surged with crude oil on concern political uprising in Egypt will disrupt supply.

The spread, or price difference, widened 0.59 cent to 47.82 cents a gallon, after Egypt’s military told Mohamed Mursi at 7 p.m. local time that he’s no longer president. Ethanol is blended with gasoline as part of U.S. energy plans to reduce dependence on foreign oil imports.

“The herd mentality is so lopsided,” said Peyton Feltus, president of Randolph Risk Management Inc. in Dallas. “All of a sudden, everyone’s bullish. Ethanol is having a tough time keeping up.”

Denatured ethanol for August delivery jumped 4.9 cents, or 2.1 percent, to $2.36 a gallon on the Chicago Board of Trade. The July contract, which expired today, climbed 5.7 cents to $2.467. Prices have gained 13 percent this year.

Gasoline for August delivery gained 5.49 cents, or 2 percent, to $2.8382 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

West Texas Intermediate crude oil surpassed $100 a barrel on concern that unrest in Egypt will disrupt crude oil supply through the Suez Canal. The country controls the Suez Canal and the Suez-Mediterranean Pipeline through which a combined 2.24 million barrels a day of oil was shipped from the Red Sea to Europe and North America in 2011, according to the EIA.

‘Not Benefiting’

“Ethanol is not benefiting from any of this euphoria,” Feltus said.

The fuel is made from corn in the U.S., where farmers have planted 97.4 million acres of the crop, the most since 1936, the Agriculture Department said June 28.

Feltus said the expectation of a larger corn crop after fields last year were devastated by the worst U.S. drought since the 1930s will lead to more ethanol production and that it’s keeping a cap on prices.

Corn for July delivery climbed 5.5 cents, or 0.8 percent, to $6.7825 a bushel in Chicago. The more actively-traded December corn contract was unchanged at $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 break-even today, up from minus 4 cents yesterday and compared with minus 35 cents on Dec. 31, data compiled by Bloomberg show.

An Energy Information Administration report showed today that ethanol output last week fell 2.5 percent to 863,000 barrels a day, the least since May 24.

Stockpiles Fall

Stockpiles of the biofuel tumbled 5.2 percent to 15.4 million, the lowest level in records going back three years, the Energy Department’s research arm said today.

The U.S. tracks compliance with the mandate to use ethanol with certificates attached to each gallon of biofuel, called Renewable Identification Numbers, or RINs. Refiners can submit them to the government after using ethanol or trade them to another party.

Corn-based ethanol RINs were unchanged at $1, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 1 cent to $1.08, data compiled by Bloomberg show.

In cash market trading, ethanol in the U.S. Gulf slipped 1.5 cents to $2.455 a gallon; in Chicago the additive lost 1.5 cents to $2.385; on the West Coast prices declined 1 cent to $2.61; and in New York Harbor the biofuel fell 1 cent to $2.46 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf expanded 0.5 cent to 15.5 cents, the widest since June 24 while Chicago’s discount to New York swelled 0.5 cent to 7.5 cents.

Today’s EIA report showed no foreign purchases of the fuel for last week, down from 38,000 barrels a day the previous week.

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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