Ethanol Rises as Discount to Gasoline Increases Blending Demand

Ethanol futures rose in Chicago as its discount to gasoline widened, spurring increased use by blenders.

The grain-based gasoline additive jumped as the discount widened to 50.6 cents, the most since May 31. Refiners receive a 45-cent tax credit for each gallon mixed into the motor fuel, in addition to the spread between the two.

“There’s still a healthy margin, there’s still the tax credit,” said Justin Dirico, senior ethanol trader at SCB & Associates in Chicago.

Denatured ethanol for August delivery rose 4.2 cents, or 1.6 percent, to settle at $2.621 a gallon on the Chicago Board of Trade. Futures have gained 65 percent in the past year.

In cash market trading ethanol on the West Coast increased 3 cents, or 1.1 percent, to $2.815 a gallon and in New York the biofuel jumped 2.5 cents, or 0.9 percent, to $2.81, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf added 2.5 cents, or 0.9 percent, to $2.80 a gallon and in Chicago the biofuel advanced 1.5 cents, or 0.6 percent, to $2.75.

Production of conventional gasoline blended with ethanol rose 1.7 percent to a record 5.26 million barrels a day last week, while supply plunged 4.8 percent to 18.6 million barrels, the Energy Department said today.

Gasoline for August delivery gained 12.94 cents, or 4.3 percent, to settle at $3.127 a gallon on the New York Mercantile Exchange.

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.