Ethanol’s Discount to Gasoline Lowest Since 2011 on Higher Use

Ethanol’s discount to gasoline dwindled to the lowest level since December 2011 on concern inventories won’t be able to meet rising demand.

The spread, or price difference, narrowed 7.96 cents to 3.49 cents a gallon. Yesterday the Energy Information Administration reported that ethanol-blended gasoline made up 96 percent of the U.S. total last week and stockpiles of the biofuel slumped to 16 million barrels, the lowest level since October 2010.

“There’s pretty strong demand in the blend pool,” said Chris Wilson, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “It’s a very strong market right now and inventories are just bare bones.”

Denatured ethanol for June delivery gained 4.6 cents, or 1.7 percent, to $2.744 a gallon on the Chicago Board of Trade, the highest price since Nov. 3, 2011. Futures have increased 36 percent in the past year and jumped a third consecutive month, the longest such streak since the period ended October 2010.

Gasoline for June delivery fell 3.36 cents, or 1.2 percent, to $2.7789 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’s discount to the motor fuel is the lowest since Nov. 28, 2011, based on front-month settlement prices.

Production last week fell 1.4 percent to 863,000 barrels a day, a record seasonal low for this time of year, the Energy Department’s analytical arm said in the report yesterday.

The fuel is made from corn in the U.S. Higher prices for the grain following last summer’s drought prompted producers to temper output or idle operations.

Corn Gains

Corn for July delivery advanced 7.75 cents to $6.62 a bushel in Chicago. The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, was 16 cents, down from 17 cents yesterday, data compiled by Bloomberg show.

While returns are attractive enough to spur higher output of the fuel, farmers are reluctant to sell because the drought reduced supplies of corn, Wilson said.

A 2007 energy law requires the U.S. to use 13.8 billion gallons of ethanol this year, or about 900,000 barrels a day. Compliance is tracked by certificates attached to each gallon of biofuel, known as Renewable Identification Numbers, or RINs.

Corn-based ethanol RINs for 2013 rose 0.5 cents to 91 cents at 4:16 p.m. New York time. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, jumped 4.5 cents to $1.04, the highest since March 11.

Imports Rise

Imports averaged 27,000 barrels a day in the week ended May 24, the first time the U.S. has made foreign purchases of the fuel since April 19.

Anhydrous ethanol in Sao Paulo fetched $2.43 a gallon in the week ended May 24, data compiled by Bloomberg show.

The U.S. exported 1.41 million barrels of ethanol in March, or 45,000 barrels a day, about 38 percent more than in February and the most since January, according to EIA data.

In cash market trading, ethanol in Chicago added 2.5 cents to $2.76 a gallon; in the U.S. Gulf the additive increased 2 cents to $2.81; on the West Coast prices jumped 2 cents to $2.86; and in New York the biofuel rose 1 cent to $2.79 a gallon, data compiled by Bloomberg show.

New York Harbor’s premium over Chicago trimmed 1.5 cents to 3 cents, the least since May 25, 2012, while the Gulf Coast’s discount to the West Coast was unchanged at 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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