Ethanol Advances on Gasoline on Record Low Seasonal Production

Ethanol’s discount to gasoline narrowed to the smallest in two weeks amid record low production of the biofuel for this time of year.

The spread between the additive and the motor fuel contracted 4.6 cents to 51.33 cents a gallon. The Energy Information Administration reported yesterday that output fell 1 percent in the week ended March 8 to 797,000 barrels a day, or 12.2 billion gallons on an annual basis, the lowest level for the period in records going back to June 2010, data compiled by Bloomberg show.

“The only market hotter than ethanol is the Dow,” said Mike Blackford, an analyst at INTL FCStone in Des Moines, Iowa. “People look at our production rate and see we’re at a rate of 12.2 billion gallons. We have a mandate for 13.8 billion gallons and they say, ‘We need to own ethanol.’”

Denatured ethanol for April delivery climbed 4.5 cents, or 1.7 percent, to $2.628 a gallon on the Chicago Board of Trade, the highest settlement since Aug. 23. Prices have gained 20 percent this year.

Gasoline futures for April delivery dropped 0.1 cent to $3.1413 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Blackford said higher corn prices and reduced yields after drought in the Midwest last year have made it difficult for ethanol companies to get the grain and increase production.

Corn for March delivery slipped 8.5 cent, or 1.2 percent, to $7.3275 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The May contract rose 6.25 cents to $7.165.

Crush Spread

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 3 cents a gallon, compared to minus 5 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Under a 2007 law, U.S. refiners are required to use 13.8 billion gallons of renewable fuels such as ethanol this year and 14.4 billion in 2014.

The value of Renewable Identification Numbers, or RINs, the certificates refiners submit to the Environmental Protection Agency to show compliance with the program, fell 9.2 percent to 78.5 cents for the conventional corn-based ethanol grade, data compiled by Bloomberg show.

Advanced RINs, which include biodiesel and Brazilian sugarcane-derived ethanol, dropped 8.6 percent to 80 cents. Both varieties of the certificates reached records on March 8.

Ethanol Output

Production fell for consecutive weeks for the first time since Dec. 14. Stockpiles of the biofuel slid a for record sixth straight week to 18.7 million barrels, the smallest amount since Nov. 23 and 15 percent below a year earlier, data from the Energy Department’s analytical arm showed.

Spot ethanol in Sao Paulo fetched $2.42 a gallon last week, according to data compiled by Bloomberg.

The U.S. didn’t import any of the fuel for a second week, the first time that’s happened since June, EIA data show. Foreign purchases of ethanol reached a record 122,000 barrels a day in October.

Ethanol-blended gasoline made up about 93 percent of the total U.S. gasoline pool last week, down from 94 percent the previous week, EIA data show.

In cash market trading, ethanol in New York surged 9 cents to $2.75 a gallon; in Chicago the additive increased 7 cents to $2.635; in the U.S. Gulf the biofuel jumped 6.5 cents to $2.69; and on the West Coast ethanol climbed 4 cents to $2.895 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf narrowed 2.5 cent to 20.5 cents, while Chicago’s discount to New York Harbor expanded to 11.5 cents from 9.5 cents.

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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