Ethanol Strengthens Against Gasoline on Record Stockpile Draws

Ethanol strengthened against gasoline on speculation prices will be supported by inventories at a record low for this time of year.

The price difference, or spread, narrowed 2.97 cents to 50.16 cents a gallon, a day after an Energy Information Administration report showed stockpiles fell a seventh week, the longest streak of declines in records going back to June 2010.

“We’ve had some plants that were idled because of poor margins,” Shawn McCambridge, senior grain market analyst for Jefferies Bache LLC in Chicago, said in a telephone interview. “If we draw these stockpiles down a little bit, this gives the plants an opportunity to run even if gasoline demand is down a couple of weeks.”

Denatured ethanol for April delivery slipped 1.6 cents, or 0.6 percent, to $2.569 a gallon on the Chicago Board of Trade. Prices have gained 17 percent this year.

Gasoline futures for April delivery declined 4.57 cents, or 1.5 percent, to $3.0706 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.

Ethanol production is at record lows for this time of year, data compiled by Bloomberg show, and output at 809,000 barrels a day is down 9.4 percent from a year earlier.

Crush Spread

Plants idled operations as higher corn prices eroded returns after drought in the Midwest wilted crops. Corn for May delivery added 0.5 cent to $7.333 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 12 cents a gallon, down from minus 11 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.

Ethanol-blended gasoline last week accounted for a record 95 percent of total motor fuel consumption, data from the Energy Department’s analytical arm showed.

The U.S. made foreign purchases of the fuel for the first time three weeks as imports averaged 27,000 barrels a day, according to EIA.

Brazil, which uses sugarcane to make the biofuel, is the largest supplier of ethanol to the U.S.

Spot ethanol in Sao Paulo fetched $2.37 a gallon last week, data compiled by Bloomberg show.

In cash market trading, ethanol dropped 4 cents to $2.57 in Chicago, 3 cents to $2.70 in New York, 4 cents to $2.63 on the Gulf Coast and 0.5 cent to $2.87 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf Coast expanded to 24 cents, the widest since March 12, while Chicago’s discount to New York Harbor stretched to 13 cents, the biggest since March 4.

Ethanol Renewable Identification Numbers for the corn-based variety were unchanged at 70.5 cents today, 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 or traded.

Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, fell 1 cent to 75.5 cents.

Corn-based RINs traded at 7.1 cents on Jan. 7 and the advanced were at 37 cents that day. The price surge for the certificates has been a source of contention between ethanol proponents and petroleum advocates.

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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