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Ethanol’s Discount to Gasoline Narrows on Seasonally Low Supply

Ethanol’s discount to gasoline narrowed on record-low seasonal inventories of the additive and on speculation that unplanned refinery outages will be resolved and boost supply of the motor fuel.

The spread, or price difference, contracted 2.43 cents to 62.51 cents a gallon as a July 17 U.S. Energy Information Administration report showed stockpiles were 15 percent below year-ago levels and are the lowest for this time of year in records going back more than three years, according to data compiled by Bloomberg.

“It’s definitely a little tight, but just doesn’t feel as bad,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “It’s hanging in there.”

Denatured ethanol for August delivery fell 4.4 cents, or 1.8 percent, to $2.43 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for August delivery slumped 6.83 cents, or 2.2 percent, to $3.0551 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Under a 2007 energy law, the U.S. is required to use 13.8 billion gallons, or 900,000 barrels a day, of ethanol this year. The government uses tracking certificates called Renewable Identification Numbers, or RINs, to enforce the mandate.

Corn-based ethanol RINs were unchanged at $1.36, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were also unchanged at $1.42.

Crush Spread

Both varieties of the RINs surged to records this month and the policy known as the Renewable Fuels Standard was the subject of a congressional hearing last week and is scheduled to be the focus of another meeting tomorrow and July 23.

Ethanol is made mostly from corn in the U.S., while the fuel is derived from sugarcane in Brazil.

Corn for September delivery slipped 3.25 cents, or 0.6 percent, to $5.4075 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel. The more actively-traded December contract decreased 2.75 cents to $4.98.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts for the grain and biofuel, was 33 cents, down from 34 cents on July 19, data compiled by Bloomberg show.

Production of the fuel fell 0.6 percent to 876,000 barrels a day in the week ended July 12 from the previous week and down 9 percent from the record 963,000 barrels a day in December 2011, EIA data show.

Rising Imports

Imports have averaged 20,000 barrels a day so far this year, more than from the same period in 2012, according to the Energy Department’s research arm.

In cash market trading, ethanol fell 3.5 cents to $2.575 in New York, 2 cents to $2.49 in Chicago, 1.5 cents to $2.57 on the Gulf Coast and 1 cent to $2.685 on the West Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium over the U.S. Gulf expanded 0.5 cent to 11.5 cents, the widest since July 11. Chicago’s discount to New York Harbor slimmed 1.5 cents to 8.5 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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