Bloomberg News

Ethanol Drops Versus Gasoline as Demand and Imports Lift Stocks

July 18, 2013

Ethanol’s discount to gasoline widened a day after a government report showed weaker demand and higher imports of the biofuel led to the biggest supply gain since November.

The spread, or price difference, expanded 2.27 cents to 60.68 cents a gallon after the U.S. Energy Information Administration said demand for the additive tumbled the most since January, foreign purchases doubled last week and inventories rose to the highest level in 10 weeks.

“Ethanol blending dropped,” said Jason Ward, an analyst at Northstar Commodity Investments in Minneapolis. “Now we’re able to build ethanol stocks higher for the first time in a while.”

Denatured ethanol for August delivery fell 2.3 cents, or 0.9 percent, to $2.503 a gallon on the Chicago Board of Trade. Prices have gained 14 percent this year.

Gasoline for August delivery decreased 0.03 cent to $3.1098 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Inventories climbed 5.5 percent to 16.6 million barrels in the week ended July 12, according to a report yesterday from the EIA, the statistical arm of the Energy Department.

Ethanol, made from corn in the U.S., is part of the country’s plans to reduce dependence on foreign sources of crude oil. A 2007 energy law requires refiners to use 13.8 billion gallons, or about 900,000 barrels a day, of the fuel this year and 14.4 billion in 2014.

Government Mandate

Compliance with the mandate is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel and that is submitted to the government. Once they blend ethanol, companies can trade the RINs.

Corn-based ethanol RINs dipped 2 cents to $1.41, falling from a record high. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, also fell 2 cents from a record to $1.42.

Corn for September delivery advanced 2.5 cents, or 0.5 percent, to $5.41 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 and the corn needed to make it, based on September contracts for the grain and biofuel, was 37 cents, down from 39 cents yesterday, data compiled by Bloomberg show.

In cash market trading, ethanol in the U.S. Gulf added 2.5 cents to $2.675 a gallon; in Chicago the additive gained 1 cent to $2.60; on the West Coast prices rose 0.5 cent to $2.685; and in New York the biofuel dropped 5 cents to $2.61 a gallon, data compiled by Bloomberg show.

New York Harbor’s premium to Chicago dwindled 6 cents to 1 cent. The Gulf Coast’s discount to the West Coast tightened 2 cents to 1 cent.

Imports of the biofuel last week doubled to 50,000 barrels a day, data from the Energy Department’s research arm show.

Anhydrous ethanol in Sao Paulo cost $2.19 a gallon in the week ended July 12, 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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