Ethanol’s Discount to Gasoline Widens on U.S. Output Gain

Ethanol weakened against gasoline by the most in three weeks after the motor fuel rallied and as the biofuel fell on higher output.

The spread widened 9.12 cents to 53.13 cents a gallon, the most since March 1, after gasoline surged. Ethanol declined after production of the biofuel rose 1.5 percent to 809,000 barrels a day in the week ended March 15, the first gain in three weeks, the Energy Information Administration said today.

“The market finally got that bounce in production,” Jerrod Kitt, an analyst at Linn Group in Chicago, said by telephone. “I would think of this as a relief selloff.”

Denatured ethanol for April delivery dropped 2 cents, or 0.8 percent, to $2.585 a gallon on the Chicago Board of Trade, a one-week low.

Gasoline futures for April delivery jumped 7.12 cents, or 2.3 percent, to settle at $3.1163 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 May delivery gained 4 cents to $7.325 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, widened to minus 11 cents a gallon from minus 8 cents. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Valero Start

Valero Energy Corp. (VLO), the third-biggest U.S. ethanol producer, restored operations at a plant in Bloomingburg, Ohio, and plans to restart a mill in Linden, Indiana. At least 19 ethanol plants have been idled since June as companies curbed output because of Midwestern drought, according to the Renewable Fuels Association in Washington.

“You’re seeing the margins for plants in the Midwest improve enough to get some of those back online,” Jason Ward, an analyst at Northstar Commodity Investment Inc. in Minneapolis, said in a telephone interview.

The U.S. imported ethanol for the first time in three weeks, bringing in 27,000 barrels a day last week, the Energy Department’s statistical arm said in the report. Brazil, which uses sugarcane to make the fuel, is the largest supplier of ethanol to the U.S.

Spot ethanol in Sao Paulo sold for $2.37 a gallon last week, according to data compiled by Bloomberg.

In U.S. cash market trading, ethanol slipped 3.5 cents to $2.61 a gallon in Chicago, 3 cents to $2.67 on the Gulf Coast, and 2.5 cents to $2.73 in New York. The biofuel rose 1 cent to $2.875 on the West Coast, data compiled by Bloomberg show.

Stockpiles Slip

Stockpiles of the U.S. biofuel slid 1.2 percent to 18.5 million barrels last week, a seventh weekly drop, the EIA said.

Ethanol-blended gasoline made up about 95 percent of the total U.S. gasoline pool last week, up from 93 percent the previous week, the report showed.

Refiners must blend 13.8 billion gallons of ethanol, or 900,000 barrels a day, this year and 14.4 billion next year, according to a U.S. biofuels law.

Ethanol Renewable Identification Numbers fell 8 cents, or 10 percent, to 69 cents yesterday, according to data compiled by Bloomberg. The certificates peaked March 8 at $1.06. RINs are assigned to each gallon of fuel introduced the market, then submitted by refiners to the Environmental Protection Agency to show compliance with the law.

Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, fell 9 cents, or 11 percent, to 74 cents.

To contact the reporter on this story: Kenneth Christensen in New York at kchristense9@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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