Ethanol’s Discount to Gasoline Tightens on Exports, Lower Stocks

Ethanol’s discount to gasoline tightened on speculation that export demand is preventing the highest production rates in 16 months from refilling stockpiles of the gasoline additive.

The spread between December contracts narrowed 1.02 cents to 88.62 cents a gallon as the most recent Energy Information Administration data shows stockpiles declining and the pace of foreign deliveries, as of August, at the highest since March.

“We have seen stockpiles hit a record low,” said Chris Krukowski, an ethanol broker at SCB & Associates LLC in Chicago. “In general we are seeing tightness.”

Denatured ethanol for December delivery fell 0.7 cent, or 0.4 percent, to $1.642 a gallon on the Chicago Board of Trade. Prices have fallen 21 percent this year. The November contract, which expires tomorrow, slumped 5 cents to $1.72.

Gasoline for December delivery slipped 1.72 cents, or 0.7 percent, to $2.5282 a gallon on the New York Mercantile Exchange. The contact covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol production rose 1.6 percent to 911,000 barrels a day in the week ended Oct. 25, the most since June 2012, according to data from the Energy Department’s statistical agency. Stockpiles sank 3.5 percent to 15 million barrels, the lowest level in more than three years of records.

The combination of rising output and falling supply indicates more foreign demand, Krukowski said. Exports reached a five-month high of 38,000 barrels a day in August, the EIA said in an Oct. 30 report, and there were no imports in the four weeks ended Oct. 25.

“Production is still ramping up, though exports are heading out,” he said.

Corn Slips

Ethanol is made mostly from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel.

Corn for December delivery slipped 1 cent to $4.2625 a bushel in Chicago, the lowest settlement since August 2010. The corn crush spread, or the difference between the cost of corn and the price of ethanol, based on December contracts, was 9 cents a gallon, down from 10 cents Nov. 1, data compiled by Bloomberg show.

In cash market trading, ethanol in New York was unchanged at $2.035 a gallon, data compiled by Bloomberg show. The price fell 7 cents to $1.75 in Chicago, 7 cents to $1.83 on the Gulf Coast and 3.5 cents to $1.84 on the West Coast.

The Gulf traded at a 1-cent discount to the West Coast, from a 2.5-cent premium on Nov. 1, while Chicago’s discount to New York stretched 7 cents to 28.5 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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