Ethanol Slips Versus Gasoline as RIN Price Signals ‘Blend Wall’

Ethanol weakened against gasoline by the most in a week as refiners facing a decline in demand used certificates that allow them to meet U.S. targets without actually blending the biofuel.

The price difference, or spread, widened 2.15 cents to 53.48 cents a gallon after the value of Renewable Identification Numbers, or RINs, rose to 75.5 cents, compared with 7.1 cents Jan. 7. Northern Tier Energy LP (NTI), a refining, retail and pipeline company in Ridgefield, Connecticut, said it’s short as many as 35 million of the credits because of falling gasoline demand and higher biofuel consumption targets, a phenomenon known as the blend wall.

“With the way RINs have been acting, it seems like that blend wall is keeping it constrained,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for April delivery advanced 0.1 cent to $2.629 a gallon on the Chicago Board of Trade. Prices have gained 20 percent this year. Gasoline futures for April delivery jumped 2.25 cents, or 0.7 percent, to $3.1638 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.

Under a 2007 energy law, the U.S. is required to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014.

Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, rose 1.3 percent to 81 cents. The conventional traded at 78.5 yesterday. Both grades of the credits touched a record on March 8.

Production Falls

Ethanol production last week fell to 797,000 barrels a day, or 12.2 billion gallons annualized, short of the mandated targets, according to the Energy Information Administration. Stockpiles of the biofuel slid a for record sixth straight week to 18.7 million barrels, the least since Nov. 23 and 15 percent below a year earlier, data from the Energy Department’s analytical arm showed.

The fuel is derived from corn in the U.S. and prices for the grain surged after drought scorched crops and devastated yields.

Corn for May delivery rose 0.5 cent to $7.17 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 3 cents a gallon, unchanged from 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.

Foreign Purchases

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.

The U.S. made no foreign purchases 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.

Brazil is the largest supplier of ethanol to the U.S. The country uses sugarcane to make the fuel, compared to corn in the U.S.

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

In cash market trading, ethanol slumped 3.5 cents to $2.86 a gallon on the West Coast, lost 0.5 cent to $2.63 in Chicago, slipped 1 cent to $2.74 in New York and was unchanged at $2.69 on the Gulf Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf slimmed to 17 cents, the lowest level since March 7, while Chicago’s discount to New York fell to 11 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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