Ethanol Steady Versus Gasoline on Stockpiles at 18-Month Low

Ethanol was steady against gasoline following a government report that showed production at the smallest level in three weeks and stockpiles of the biofuel at an 18-month low.

The spread, or price difference, expanded 0.04 cent to 27.08 cents a gallon, after the Energy Information Administration said inventories dropped 1.1 percent to 16.8 million barrels, a second weekly decline and the lowest level since Nov. 4, 2011. Production slid to 843,000 barrels a day.

“I thought we’d get a stock build and it was a draw,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “Production was a draw, and that was a surprise to me, too.”

Denatured ethanol for June delivery rose 2 cents, or 0.8 percent, to $2.583 a gallon on the Chicago Board of Trade. Futures have gained 17 percent in the past year.

Gasoline for June delivery advanced 2.04 cents, or 0.7 percent, to $2.8538 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 production is down 6 percent from a year earlier as the biofuel struggles to return to levels prior to last summer’s drought that devastated corn crops and cut returns on making the additive.

Cycling Through

“We’ve gone through a period where production rates have been down and we’ve gotten stocks down to a point in some areas where they have to scramble,” Blackford said. “It takes a while to cycle through.”

Corn for July delivery declined 7 cents, or 1.1 percent, to $6.33 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread for July was 17 cents a gallon, up from 13 cents yesterday. That compares with 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.

Ethanol-blended gasoline made up a record 97 percent of the total U.S. gasoline pool, up from 96 percent the previous week, the Energy Department’s statistical arm said.

For a second week, there were no U.S. imports.

Spot ethanol in Sao Paulo fetched $2.50 a gallon in the week ended May 3, down 3 percent from the previous week, data compiled by Bloomberg show.

In U.S. cash market trading, ethanol in Chicago fell 1.5 cent to $2.685 a gallon; in the U.S. Gulf the additive slipped 1 cent to $2.75; in New York prices gained 1 cent to $2.91; and on the West Coast the biofuel jumped 1 cent to $2.81, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf expanded 2 cents to 6 cents and Chicago’s discount to New York Harbor expanded 2.5 cents to 22.5 cents, the widest since Dec. 9, 2011.

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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