Ethanol’s Discount to Gasoline Slides to One-Month Low on Supply

Ethanol’s discount to gasoline narrowed to the smallest level in more than a month as plant shutdowns drained stockpiles of the fuel.

The spread contracted 11.41 cents to 47.15 cents a gallon the least difference since Jan. 23 and the biggest one-day fall since Oct. 1. Stockpiles have fallen four consecutive weeks, the longest streak of declines since October 2010, to the lowest level in 12 weeks, an Energy Information Administration report showed today.

“It’s harder and harder to get stuff bought,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “There’s less ethanol available.”

Denatured ethanol for March delivery slid 1.1 cent, or 0.5 percent, to $2.385 a gallon on the Chicago Board of Trade. Futures have advanced 8.9 percent this year.

Gasoline for March delivery plunged 12.51 cents, or 4.2 percent, to $2.8565 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Ethanol futures traded higher before the EIA, the Energy Department’s statistical arm, released the report showing production gained a fourth week, the longest string of advances since Aug. 17.

Output was 812,000 barrels a day, down 16 percent from the record in December 2011. On an annualized basis of 12.5 billion gallons, that’s short of the 13.8 billion refiners are mandated to use under a 2007 law.

Drought’s Effect

Drought in the corn-rich U.S. Midwest devastated yields and raised the cost of turning the grain into the biofuel. At least 19 ethanol plants have been idled since June, according to the Renewable Fuels Association in Washington.

Corn for March delivery rose 4.5 cents, or 0.6 percent, to $7.095 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 20 cents, compared with minus 17 cents yesterday and minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Imports of the fuel have increased as output has dropped, EIA data show. Ethanol imports last week rose 52 percent to 32,000 barrels a day, the highest level in five weeks.

Spot Prices

Spot ethanol in Sao Paulo fetched $2.43 a gallon last week, according to data compiled by Bloomberg.

Ethanol-blended gasoline made up 88 percent of the total U.S. gasoline pool in the week ended Feb. 22, down from 90 percent the previous week, the EIA reported.

In cash market trading, ethanol rose 1.5 cent to $2.52 a gallon in New York; was unchanged at $2.38 in Chicago; added 0.5 cent to $2.45 on the Gulf Coast; and climbed 0.5 cent to $2.58 a gallon on the West Coast, according to data compiled by Bloomberg.

West Coast ethanol’s premium to the U.S. Gulf was unchanged at 13 cents, while Chicago’s discount to New York Harbor widened to 14 cents from 12.5.

The value of Renewable Identification Numbers, or RINs, for corn-based ethanol reached a record 53 cents today, according to Blue Ocean Brokerage LLC in New York. They were 45.5 cents yesterday.

RINs are a mechanism to help the Environmental Protection Agency rack compliance with government 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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