Bloomberg News

Ethanol’s Discount to Gasoline Narrows on Lower Production Rates

July 08, 2013

Ethanol’s discount to gasoline narrowed as the motor fuel declined and amid speculation that lower production rates will make it difficult to replenish inventories of the additive.

The spread, or price difference, between the fuels shrank by 3.11 cents to 47.37 cents a gallon as of 4:20 p.m. New York time. Ethanol output last week fell 2.5 percent to 863,000 barrels a day, a five-week low, and inventories sank 5.2 percent to 15.4 million barrels, the smallest stockpile in records going back three years, Energy Information Administration data show.

“Stocks are way down and production is kind of range-bound here and not shooting up,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for August delivery advanced 1.8 cents, or 0.8 percent, to $2.41 a gallon on the Chicago Board of Trade. Prices have gained 10 percent this year.

Gasoline for August delivery fell 1.31 cents to $2.8837 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Prices for the motor fuel dropped as crude oil declined from a 14-month high as operations on the Suez Canal were reported to be normal at a time of turmoil in Egypt.

Ethanol is made from corn in the U.S. Last summer’s drought eroded crops, pushed up costs to make the biofuel and depleted stockpiles.

Corn Prices

Corn for September delivery climbed 7.5 cents, or 1.4 percent, to $5.3325 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread, or the cost difference between a gallon of ethanol, based on September contracts for the fuel and grain, was 32 cents, down from 33 cents on July 5, data compiled by Bloomberg show.

Compliance with U.S. mandates to blend ethanol into gasoline is tracked with certificates known as Renewable Identification Numbers, or RINs, that are attached to each gallon of biofuel. Refiners can submit them to the government or trade them.

Corn-based RINs rose 2 cents to $1.04, while advanced RINs climbed 2 cents to $1.10, data compiled by Bloomberg show.

Babler said prices for the additive also gained after EIA data showed no U.S. imports of the biofuel in the week ended June 28, compared with 38,000 barrels a day the previous week.

In cash market trading, ethanol gained 4 cents to $2.545 a gallon in New York, 2.5 cents to $2.465 in Chicago, 3 cents to $2.50 on the Gulf Coast and $1.5 cents to $2.645 on the West Coast, 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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