Ethanol Strengthens Against Gasoline on Signs of Higher Demand

Ethanol jumped the most in five weeks against gasoline on signs of increased demand for the additive while prices for the motor fuel dropped.

The spread narrowed 2.83 cents to 75.32 cents a gallon, the largest one-day contraction since Jan. 15, according to futures market data compiled by Bloomberg. Ethanol stockpiles dropped in the week ended Feb. 8, leaving them down 9.3 percent from a year earlier, while output gained.

“You’re increasing production even though stocks have declined two consecutive weeks,” said Jason Ward, an analyst at Northstar Commodity Investments in Minneapolis. “That shows demand is increasing. That’s positive for prices.”

Denatured ethanol for March delivery rose 1.5 cents, or 0.6 percent, to $2.368 a gallon on the Chicago Board of Trade. Prices have risen 8.1 percent this year.

Gasoline for March delivery dropped 1.33 cents, or 0.4 percent, to $3.1212 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool as of Feb. 8, the highest level in four weeks, according to the U.S. Energy Information Administration, the Energy Department’s statistical agency.

Production of the biofuel in the week ended Feb. 8 climbed to 789,000 barrels a day, down 15 percent from a year earlier, EIA data show. Stockpiles dropped to 19.5 million barrels.

Corn Costs

Ethanol companies have cut output or idled plants because of poor returns caused by a supply glut and higher costs for corn, the fuel’s main ingredient.

Corn for March delivery decreased 3.5 cents to $6.9525 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. Corn futures rose to a record $8.49 a bushel in August as drought in the Midwest cut yields.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 16 cents today compared with minus 19 cents on Feb. 15. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Prices rose in cash market trading, data compiled by Bloomberg show. Ethanol in New York Harbor climbed 1.5 cents to $2.445 a gallon, while in Chicago the additive gained 1 cent to $2.345 and on the West Coast, the most expensive region, the biofuel jumped 1.5 cents to $2.535. The fuel was unchanged in the U.S. Gulf at $2.40.

Chicago Discount

New York’s premium to Chicago was 10 cents, the highest since Feb. 14 and the West Coast was 13.5 cents costlier than in the U.S. Gulf, the highest since Feb. 11.

Spot ethanol in Sao Paulo cost $2.38 a gallon last week, according to data compiled by Bloomberg, more expensive than today’s futures price.

Ethanol imports have plunged 87 percent since Dec. 28 to 11,000 barrels a day as of Feb. 8, EIA data show.

The value of Renewable Identification Numbers, known as RINs, for advanced forms of ethanol, which includes the Brazilian grade, fell 2 percent to 52 cents, from Feb. 15, or 79 percent more expensive than the worth of the conventional sort, which rose 3.6 percent to 29 cents, data compiled by Bloomberg show.

RINs are credits that help the government track whether refiners are meeting federal biofuel 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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