Ethanol Weakens Against Gasoline Fourth Day on Supply Glut

Ethanol weakened against gasoline a fourth day after a U.S. government report showed a glut of the biofuel in storage.

Stockpiles rose 3.6 percent to 20 million barrels in the week ended Dec. 7, the highest level since June 29 and up 17 percent from a year earlier, the Energy Department report today showed. Production fell 1.3 percent to 824,000 barrels a day.

“We’ve built 1.7 million barrels in the last two weeks,” said Ian Jackson, a trader at SCB & Associates LLC in Chicago. “It seems like producers can’t help themselves.”

Ethanol’s discount to gasoline expanded to 32.65 cents a gallon from 27.15 cents yesterday, the widest spread since Nov. 30, based on futures settlement prices. The differential has averaged 61.57 cents this year.

Denatured ethanol for January delivery fell 1.9 cents, or 0.8 percent, to $2.32 a gallon on the Chicago Board of Trade, the lowest price since Nov. 5. Prices dropped for a fifth day, the longest streak of declines since the period ended Aug. 28. The futures have climbed 5.3 percent this year.

Many ethanol producers are making the fuel at a loss because of high prices for corn, the primary feedstock, and lower demand, Jackson said.

“It seems like a death spiral down to which the producer can’t make any anymore and has to close the doors first,” Jackson said.

Spot Prices

In cash market trading, ethanol in New York slid 3 cents, or 1.2 percent, to $2.42 a gallon and in the U.S. Gulf the additive dropped 3 cents, or 1.2 percent, to $2.385, according to data compiled by Bloomberg.

Ethanol in Chicago decreased 2 cents, or 0.9 percent, to $2.33 a gallon and on the West Coast the biofuel slipped 0.5 cent to $2.47.

Gasoline for January delivery rose 3.6 cents, or 1.4 percent, to settle at $2.6465 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up about 90 percent of the total U.S. gasoline pool, up from 87.5 percent in the seven days ended Nov. 30, which was the lowest amount since Jan. 6, the Energy Department report showed. The fuel has averaged about 91 percent this year.

Corn Costs

Corn for March delivery fell 2.5 cents, or 0.3 percent, to $7.255 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, unchanged from 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.

The value of Renewable Identification Numbers, known as RINs, rose 1.4 percent to 5.58 cents, data compiled by Bloomberg show. RINs are credits that help the government track whether refiners are meeting 2012 federal ethanol use mandates.

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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