Ethanol Strengthens Against Gasoline on Below-Average Production

Ethanol strengthened against gasoline on speculation that demand for the biofuel is outstripping supply.

The fuels’ spread shrank by 1.11 cents to 28.44 cents a gallon as production of the fuel reached 832,000 barrels a day last week, the lowest level for this time of year in records going back to June 2010, a report from the Energy Information Administration showed. Inventories have fallen 11 out of the 15 weeks so far this year.

“It’s lack of production and drawing stockpiles,” said Ian Jackson, a trader at SCB & Associates LLC in Chicago. “Just genuine tightness out there.”

Denatured ethanol for May delivery gained 2.8 cents, or 1.1 percent, to $2.488 a gallon on the Chicago Board of Trade. Prices have risen 14 percent this year.

Gasoline for May delivery advanced 1.69 cents, or 0.6 percent, to $2.7724 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Last year, the worst drought since the 1930s damaged corn crops and raised costs to make the fuel. Prices for the grain have as Agriculture Department reports predicted larger-than- expected supplies.

Corn for May delivery rose 7.5 cents, or 1.2 percent, to $6.52 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Crush Spread

The corn crush spread, representing gains or losses from turning corn into ethanol, was 12 cents a gallon, unchanged from yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol that can be fed to livestock,

The spread has been above or near break-even for all of April, the longest such streak since December 2011, data compiled by Bloomberg show.

A 2007 energy law, known as the Renewable Fuels Standard, requires the U.S. to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014.

Compliance with the program is tracked with certificates called Renewable Identification Numbers, or RINs, that are assigned to each gallon of biofuel.

Corn-ethanol-based RINs fell 1.5 cents today to 68.5 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 79.5 cents.

Production Short

On an annual basis, production has averaged 12.3 billion gallons so far this year, EIA data show, short of the level needed to meet federal mandates.

Stockpiles last week dropped 1.6 percent to 17.5 million barrels, 20 percent lower than a year earlier, the EIA said. Inventories have fallen 11 out of the 15 weeks of this year.

Jackson said ethanol prices have received a boost from a lack of foreign competition. Brazil is the biggest supplier of the biofuel to the U.S.

The U.S. hasn’t imported any of the fuel since March 29, the Energy Department’s analytical arm said in the April 17 report.

Spot ethanol in Sao Paulo cost $2.46 a gallon last week, the highest since April 13, 2012, data compiled by Bloomberg show.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline supply last week, down from a record 96 percent the previous week, according to the EIA.

In cash market trading, ethanol increased 3.5 cents to $2.68 a gallon in New York, 5 cents to $2.515 in Chicago and 5 cents to $2.57 on the Gulf Coast, data compiled by Bloomberg show. On the West Coast, ethanol was unchanged at $2.76 a gallon.

West Coast ethanol’s premium to the Gulf Coast contracted 5 cents to 19 cents, the smallest differential since April 9. Chicago’s discount to New York Harbor narrowed 1.5 cents to 16.5 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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