Ethanol’s Discount to Gasoline Widens as Stockpiles Rebound

Ethanol’s discount to gasoline widened after a U.S. Energy Information Administration report showed stockpiles of the fuel rebounded from a record low.

The spread, or price difference, swelled 7.39 cents to 57.39 cents a gallon after the Energy Department’s research arm said ethanol inventories jumped to 15.7 million barrels, led by an 8.4 percent increase in the U.S. Midwest, the region known as PADD 2.

That gain “represents the largest percentage increase for the region since January of 2012,” said Michael Breitenbach, a broker and director of research at Blue Ocean Brokerage LLC in New York.

Denatured ethanol for August delivery climbed 1.5 cents, or 0.7 percent, to $2.441 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for August delivery surged 8.89 cents, or 3 percent, to settle at $3.0149 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 gained 2.1 percent to 881,000 barrels a day last week, the EIA report showed, the biggest gain since May 31 and the highest rate since June 21. That’s 7.3 percent higher than a year earlier.

Inventories increased for the first time since June 14 and for only the third time out of the last 10 weeks, the report showed.

The U.S. imported 25,000 barrels a day of the fuel last week, compared to none the previous week, EIA said.

‘Generally Tight’

“Increased production and imports are helping, but the supply situation is still generally tight,” Breitenbach said.

The biofuel is made from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel. Last summer’s drought reduced supply of the grain and raised production costs to make ethanol.

Corn for September delivery rose 2 cents to settle at $5.5375 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread, or the cost difference between a gallon of ethanol, based on September contracts for the fuel and grain, was 29 cents, up from 28 cents yesterday, data compiled by Bloomberg show.

Renewable Identification Numbers, or RINs, for corn-based ethanol in the U.S. rose 3.8 percent to a record $1.09, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, jumped 8.2 percent to record $1.19.

The RINs are used to track adherence to a federal law requiring the use of 13.8 billion gallons of ethanol this year.

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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