Ethanol Weakens Against Gasoline for Second Day as Output Swells

Ethanol weakened for a second day against gasoline, the first consecutive losses in more than three weeks, as production of the biofuel increased.

The spread widened 4.64 cents to 35.88 cents a gallon, the biggest one-day expansion since April 1. The Energy Information Administration reported yesterday that output rose 2.5 percent to 853,000 barrels a day in the week ended April 19, up 11 percent from a record low on Jan. 25, while inventories climbed 0.5 percent to 17.6 million barrels. The value of Renewable Identification Numbers increased.

“The market’s done its job in terms of encouraging production to come back,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa.

Denatured ethanol for May delivery added 1.8 cents, or 0.7 percent, to $2.453 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.

Gasoline for May delivery rose 6.44 cents, or 2.3 percent, to $2.8118 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 output has tumbled 11 percent from a record high 963,000 barrels a day in December 2011 after drought last summer in the U.S. Midwest sent corn prices soaring and wiped out profits for turning the grain into renewable fuel.

Poet LLC, Abengoa SA (ABG) and Valero Energy Corp. (VLO) are among companies that have resumed operations at mills that were idled because of the higher manufacturing costs.

Corn Futures

Corn for May delivery rose 5.75 cents, or 0.9 percent, to $6.4525 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread was 11 cents a gallon, unchanged from yesterday. That compares to minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Corn-based RINs rose 2.5 percent to 62.5 cents, rebounding from the lowest level since March 25, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, climbed 1.3 percent to 77 cents.

RINs are certificates assigned to each gallon of biofuel to track compliance with government mandates. Once the fuel is mixed with petroleum, refiners can keep the certificate or trade it. Corn-based RINs have plunged 41 percent from a record $1.06 on March 8. Advanced RINs have dropped 29 percent since March 11 from their high of $1.08.

RIN Futures

CME Group Inc. (CME) said today that it will start futures contracts for the certificates on May 13. RINs for biodiesel, advanced biofuel and ethanol will be settled based on Argus Media prices, the exchange said in the statement. They will be available on the CME Globex electronic trading platform for over-the-counter clearing through CME ClearPort and open outcry on the trading floor in New York.

Rising RINs have been a source of contention between ethanol industry advocates and petroleum interests as they debate whether the U.S. should keep the law.

The House Energy and Commerce Committee plans to hold hearings this summer on the law, Charlotte Baker, the committee’s spokeswoman said in an e-mail today.

In cash market trading, ethanol rose 0.5 cent to $2.62 a gallon in New York, 4 cents to $2.48 in Chicago and 4.5 cents to $2.545 on the Gulf Coast, data compiled by Bloomberg showed. West Coast ethanol dropped 0.5 cent to $2.675.

New York Harbor’s premium to Chicago dropped 3.5 cents to 14 cents and the U.S. Gulf’s discount to the West Coast dwindled 5 cents to 13 cents, the tightest since March 5.

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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