Ethanol’s Discount to Gasoline Slims to Three-Week Low on Supply

Ethanol’s discount to gasoline tightened to the narrowest in three weeks after a government report showed record-low seasonal supply of the biofuel while output increased.

The spread, or price difference, narrowed 2.68 cents to 26.46 cents a gallon, the smallest gap since June 5, after an Energy Information Administration report showed production of the fuel jumped to the highest level in three weeks while stockpiles declined to a two-week low.

“The report was friendly, more ethanol production, less supply, nothing bearish about it,” said Jason Ward, an analyst at Northstar Commodity Investments LLC in Minneapolis.

Denatured ethanol for July delivery rose 2 cents, or 0.8 percent, to settle at $2.466 a gallon on the Chicago Board of Trade. Prices are up 13 percent this year.

Gasoline for July delivery fell 0.68 cent, or 0.2 percent, to $2.7306 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-blended gasoline made up 95 percent of the total U.S. gasoline pool, compared with about 94 percent the previous week.

Production of the fuel climbed 1.4 percent to 885,000 barrels a day, the first time output has increased since May, according to the EIA, the Energy Department’s statistical arm.

Stockpiles Slip

Stockpiles slipped 1 percent to 16.3 million barrels, about 22 percent lower than a year ago and a record seasonal low, data compiled by Bloomberg show.

Supply of the fuel has struggled to rebound to levels prior to last summer’s U.S. drought that wilted corn crops and raised manufacturing costs for ethanol companies.

Corn for July delivery climbed 7.75 cents to $6.645 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 5 cents, down 1 cent from yesterday, data compiled by Bloomberg show.

Higher prices for ethanol have led to increased imports. Foreign purchases fell 42 percent to 38,000 barrels a day last week, EIA data show.

They still have averaged 20,000 barrels a day so far this year, up from 7,000 barrels during the same period a year earlier.

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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