Ethanol’s Discount to Gasoline Narrows to 5-Month Low on Demand

Ethanol’s discount to gasoline narrowed to the weakest level in almost five months on increased demand for the biofuel.

The grain-based additive’s discount to gasoline was 18.79 cents a gallon based on front-month futures, versus 21.08 cents yesterday, the least since July 18. The spread has averaged 62.2 cents this year and reached 99.8 cents Sept. 28.

“It feels like there’s some buying to do,” said Jim Damask, a manager at BiofuelsConnect, a Jupiter, Florida-based alternative energy broker. “People are asking for higher prices and they’re getting it. It seems like they’re filling their short-term needs and they have more short-term needs.”

Denatured ethanol for January delivery fell 1.2 cents, or 0.5 percent, to $2.409 a gallon on the Chicago Board of Trade. The December contract expired yesterday. Prices have climbed 9.4 percent this year.

In cash market trading, ethanol in Chicago dropped 4 cents, or 1.6 percent, to $2.40 a gallon and on the West Coast the additive decreased 4 cents to $2.535, data compiled by Bloomberg show.

Ethanol in the U.S. Gulf slipped 4 cents to $2.455 a gallon and in New York the biofuel decreased 3 cents to $2.50.

Gasoline for January delivery slid 4.09 cents, or 1.6 percent, to settle at $2.5969. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Supply Glut

A supply glut in ethanol has encouraged refiners to fulfill needs on a more immediate basis and not to lock in longer-term pacts, Damask said.

Stockpiles rose 5.4 percent to 19.3 million barrels in the week ended Nov. 30 from the previous week, Energy Department data show.

Corn for March delivery tumbled 6.25 cents, or 0.8 percent, to $7.515 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on December contracts for corn and ethanol, producers are losing 29 cents on each gallon of the fuel made, down from 31 cents yesterday, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, according to data collected by Bloomberg.

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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