Ethanol-Gasoline Gap Narrows on Speculation Discount to Spur Use

Ethanol’s discount to gasoline narrowed on speculation that the widest price difference between the two since September will spur demand for the biofuel.

The grain-based additive traded 61.61 cents below gasoline, based on front-month futures compared with 62.2 cents on Dec. 31, the widest since Sept. 28. Gasoline traded for February delivery while ethanol traded for January. The ethanol contract expires Jan. 4.

“You would think they would increase ethanol blending,” said Mark Schultz, chief analyst at Northstar Commodity Investment Co. in Minneapolis. “The spread has moved up to about 60 cents.”

Denatured ethanol for January delivery fell 1.1 cents to settle at $2.179 a gallon on the Chicago Board of Trade. The futures were down 1.1 percent from a year ago.

The more actively traded February contract fell 1.6 cents, or 0.7 percent, to $2.194 a gallon, about 60 cents cheaper than gasoline.

In cash market trading, ethanol in the U.S. Gulf rose 3 cents, or 1.4 percent, to $2.245 a gallon and in Chicago the additive increased 1 cent, or 0.5 percent, to $2.195, data compiled by Bloomberg shows.

Ethanol on the West Coast was unchanged at $2.35 a gallon and in New York the biofuel slipped 0.5 cent to $2.28.

Gasoline for February delivery jumped 3.34 cents, or 1.2 percent, to $2.7951 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Corn for March delivery decreased 7.5 cents, or 1.1 percent, to $6.9075 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, down from 31 cents Dec. 31, 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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