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Ethanol Narrows Discount to Gasoline on Low Production Levels

Ethanol’s discount to gasoline narrowed to the smallest level in 12 weeks with production of the additive below year-earlier levels and stockpiles of the motor fuel advancing.

The spread, or price difference, shrank 6.18 cents to 38.03 cents a gallon at 10:50 a.m. New York time, the narrowest since Jan. 16. Yesterday the Energy Information Administration reported ethanol production last week was 4.7 percent below last year’s level and gasoline supplies rose 0.8 percent.

“We’ve got easily probably another billion gallons of capacity that can come online,” said Chris Wilson, an analyst at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for May delivery advanced 3.4 cents, or 1.4 percent, to $2.457 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.

Gasoline for May delivery decreased 2.78 cents, or 1 percent, to $2.8373 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol plunged 3 percent after the EIA report showed production jumped 5.8 percent to 854,000 barrels a day, the highest since June 29 and the biggest weekly gain since the week ended Dec. 3, 2010.

Returns to make the fuel have rebounded because of rising estimates of corn stockpiles, after prices for the grain reached a record in the wake of the worst U.S. drought since the 1930s.

Corn Forecast

The Agriculture Department forecast yesterday that inventories on Aug. 31 will be 757 million bushels, up from 632 million forecast in March.

Corn for May delivery rose 8.5 cents, or 1.3 percent, to $6.575 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 7 cents a gallon, up from 6 cents yesterday and up from minus 35 cents at the end of 2012. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

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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