Ethanol-Gasoline Discount Falls on Tight Biofuel Supply

Ethanol’s discount to gasoline narrowed as inventories slipped while gasoline supplies jumped to a nine-month high.

Inventories of ethanol in the U.S. were 20.3 million barrels a day in the week ended Dec. 21, down 523,000 barrels from the week before, the Energy Department reported today. Production advanced to 834,000 barrels a day, the first increase in three weeks, according to department data. Gasoline stockpiles climbed 3.78 million barrels to 223.1 million, the most since March 23.

Ethanol’s discount to gasoline narrowed to 60.59 cents a gallon based on January futures contracts. Yesterday’s differential of 61.83 cents was the widest since September.

Denatured ethanol for January delivery declined 0.9 cent to $2.194 a gallon on the Chicago Board of Trade, the lowest settlement since June 26.

In cash market trading, ethanol was unchanged in New York at $2.285 a gallon, on the Gulf Coast at $2.215, on the West Coast at $2.35 and in Chicago at $2.185, according to data compiled by Bloomberg.

Gasoline for January delivery fell 2.14 cents, or 0.8 percent, to settle at $2.7999 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations. January contracts will expire at the close of floor trading Dec. 31.

‘Poor’ Margins

Corn for March delivery rose 0.4 percent to $6.94 a bushel in Chicago. The price has dropped 7.8 percent in December, heading for the largest monthly decline since May.

Based on March contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, up from 28 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.

“It continues to be a poor margin situation for ethanol plants,” Jason Ward, a market analyst at Northstar Commodity Investments LLC, a Minneapolis-based risk management company that specializes in agribusiness and renewable fuel, said in a e-mail today.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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