Ethanol’s Discount to Gasoline Shrinks to Three-Month Low

Ethanol’s discount to gasoline narrowed to the lowest level in three months on record low seasonal inventories of the biofuel and as the value of Renewable Identification Numbers gained.

The spread, or price difference, between the fuels tightened by 0.88 cent to 37.78 cents a gallon, the least since Jan. 15. The Energy Information Administration reported stockpiles of the fuel in the week ended April 5 were 18 percent lower than a year earlier and inventories along the U.S. East Coast were 32 percent below this time last year.

“It still feels a little bit tight,” said Jim Damask, a manager at StarFuels Inc., in Jupiter, Florida. “It’s still trading relatively stronger than it has in the past.”

Denatured ethanol for May delivery climbed 3.3 cents, or 1.4 percent, to $2.404 a gallon on the Chicago Board of Trade. Prices have gained 9.8 percent this year.

Gasoline for May delivery gained 2.42 cents, or 0.9 percent, to $2.7818 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 is made mostly from corn in the U.S., with one bushel of the grain distilling into at least 2.75 gallons of the renewable fuel.

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. Compliance with the mandate is tracked by Renewable Identification Numbers, or RINs, certificates that are assigned to each gallon of biofuel produced or imported that can be submitted to the government or traded.

RINs Values

Corn-ethanol based RINs climbed 1.4 percent today to 71 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, jumped 11 percent to 86 cents, the highest level in a week.

The biofuel will consume about 42 percent of this year’s corn crop, the Agriculture Department projected in its April 10 World Agricultural Supply and Demand Estimates report.

Corn for May delivery gained 16.5 cents, or 2.6 percent, to $6.6325 a bushel in Chicago.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 1 cent a gallon, down from 2 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 Production

Ethanol output averaged 854,000 barrels a day in the week ended April 5, the highest level since June 29, the report from the Energy Department’s analytical arm showed.

The department is set to release the latest figures tomorrow at 10:30 a.m. in Washington.

Ethanol-blended gasoline has made up an average of 90 percent of the total U.S. gasoline supply so far this year, little changed from the same period a year earlier, EIA data show, and touched a record 96 percent as of April 5.

U.S. companies didn’t make any foreign purchases of the fuel that week. Imports have averaged 27,000 barrels a day so far this year, up from 4,000 a year earlier, according to EIA data.

Brazil, where sugarcane is used to make ethanol, is the biggest supplier of ethanol to the U.S.

Spot ethanol in Sao Paulo fetched $2.46 a gallon as of last week, data compiled by Bloomberg show, the highest since April 13.

U.S. Exports

The U.S. exported 1.5 million barrels of ethanol in January, the most recent month for which data is available, according to EIA. That’s the highest since June.

In cash market trading, ethanol on the West Coast was unchanged at $2.74 a gallon, data compiled by Bloomberg show. In New York the additive increased 1 cent to $2.545, while in the U.S. Gulf the biofuel dropped 4 cents to $2.455 and in Chicago ethanol slipped 3.5 cents to $2.395 a gallon.

West Coast ethanol’s premium to the U.S. Gulf widened 4 cents to 28.5 cents, the largest differential since Oct. 24, 2011, while Chicago’s discount to New York expanded 4.5 cents to 15 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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