Ethanol’s Discount to Gasoline Narrows on Low Midwest Supply

Ethanol gained against gasoline with supplies of the biofuel in the Midwest at record lows and on speculation hot weather will make it harder to replenish them.

The spread narrowed 4.83 cents to 92.04 cents a gallon. Supplies in the PADD 2 region, which covers the Midwest, were 4.86 million barrels in the week ended Aug. 30, data from the U.S. Energy Information Administration show, the least since the EIA began keeping weekly data in June 2010. Above-average temperatures were forecast for the Midwest, which may force ethanol refineries to slow production.

“That seems to be the focal point,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “Everybody’s doing what they can to get gallons in there and fill that market, even if they have to fill up a bucket and carry it in.”

Denatured ethanol for October delivery decreased 0.3 cent to $1.882 a gallon on the Chicago Board of Trade. Futures have dropped 14 percent this year.

Gasoline for October delivery slumped 5.13 cents, or 1.8 percent, to $2.8024 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Blackford said the Midwest heat wave is making it difficult for ethanol plants to operate at capacity. The high temperature in Des Moines, Iowa, topped 100 degrees today versus the average high for the date of 79, according to AccuWeather Inc. in State College, Pennsylvania. Chicago and Minneapolis were also expecting highs in the 90s.

Corn for December delivery dropped 4.75 cents, or 1 percent, to $4.635 a bushel in Chicago. September corn sank 14.25 cents to $4.7725. Ethanol in the U.S. is made mostly from corn in the U.S.

Cash Market

In cash market trading, Chicago spot ethanol fell 23 cents to $2.685 a gallon, reducing its premium to New York Harbor to 8 cents from a record 29 cents on Sept. 6. Chicago has averaged a 10-cent discount to New York over the past year.

The price fell 2 cents to $2.605 in New York, 2 cents to $2.755 on the Gulf Coast and 1 cent to $2.695 on the West Coast, data compiled by Bloomberg show.

The West Coast’s discount to the Gulf narrowed 1 cent to 6 cents. That compares to the 10.97-cent premium the West Coast has averaged above the Gulf over the past year.

Production of the biofuel in the week ended Aug. 30 slipped to 819,000 barrels a day last week, the lowest since March 29, data from the Energy Department’s statistical arm show.

Stockpiles of the additive slumped 0.2 percent to 16.2 million barrels, the lowest since July 5, according to EIA data.

Ethanol imports averaged 37,000 barrels a day in the week ended Aug. 30, up from 4,000 the previous week, it said.

Refiners are required to use 13.8 billion gallons of ethanol this year. Each batch of ethanol is given a Renewable Identification Number, or RIN, to help the government track compliance. RINs can be traded among companies.

Corn-based ethanol RINs were unchanged at 68 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, held at 76 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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