Ethanol Climbs to Seven-Week High Amid Cash-Market Demand

Ethanol futures climbed to a seven-week high as demand in the physical market improved amid declining U.S. inventories.

Ethanol advanced 5.7 percent after stockpiles declined for a second straight week, dropping 0.5 percent to 15.1 million barrels for the period ended Nov. 15, the Energy Information Administration said today. Production slid 2.5 percent to 904,000 barrels a day.

“There’s strong demand in the cash market today,” Jim Damask, a manager at Starfuels Inc. said in a telephone interview from Jupiter, Florida. “The discount to gasoline is attractive.”

Ethanol’s discount to the motor fuel tightened 8.05 cents to 72.3 cents, based on settlement prices for ethanol and gasoline futures.

Denatured ethanol for December rose 10.4 cents to settle at $1.94 a gallon on the Chicago Board of Trade, the highest level since Sept. 30. Prices have dropped 11 percent this year.

Gasoline for December delivery gained 2.35 cents, or 0.9 percent, to $2.663 a gallon at the close on the New York Mercantile Exchange. The contract covers reformulated gasoline made to be blended with ethanol before delivery to gasoline stations.

In cash market trading, ethanol climbed 12.5 cent to $2.45 a gallon in New York and 15 cents to $2.375 in Chicago, according to data compiled by Bloomberg. Prices advanced 14.5 cents to $2.47 on the Gulf Coast and 13 cents to $2.455 a gallon on the West Coast.

Cash Market

West Coast ethanol’s discount to the Gulf was 1.5 cents, compared with parity yesterday. Chicago’s discount to New York narrowed 2.5 cents to 7.5 cents.

U.S. ethanol inventories have dropped by 20 percent in the past year, while output has soared 11 percent, EIA data shows.

“Stocks just declined slightly compared to output” this week, Jason Ward, a market analyst for Northstar Commodity Investment Co. said today in a telephone interview from Minneapolis. “We’re not building stocks because there’s a healthy demand from the discount-to-gasoline side.”

The Environmental Protection Agency tracks compliance with the government mandate for biofuel blending with Renewable Identification Numbers, or RINs, certificates assigned to each gallon that are submitted to the agency and can be traded among refiners.

Generation of U.S. corn ethanol RINs jumped to a 21-month high of 1.17 billion gallons in October, the EPA said Nov. 19. Output of advanced ethanol RINs, which included biodiesel and Brazilian sugarcane ethanol, slumped by about half, to 29.8 million gallons, from 65.1 million gallons in September.

RINS Trading

Corn-based RINs rose 1 cent to 19 cents today, the first increase since Nov. 6, while advanced RINs fell 2 cents to 20 cents.

December-delivery corn, the main raw material for ethanol, fell 0.75 cent to $4.17 a bushel. The December crush spread of corn to ethanol was 43 cents, up from 32 cents yesterday, data compiled by Bloomberg show.

The EPA is proposing to push the renewable fuels mandate for next year to 15.21 billion gallons, including 13 billion for corn ethanol. That compares with an overall 18.15 billion gallons set in the 2007 law. A final rule is due in the first quarter of next year, after refiners and ethanol producers weigh in, the agency said Nov. 15.

The first of the public hearings is scheduled for Dec. 5 in Washington, according to the Federal Register.

Oil refiner Alon USA Energy Inc. (ALJ), based in Dallas, got a waiver to comply with RINs requirements this year for its Krotz Springs refinery, according to a November investor presentation released today. The refinery was exempted from the renewable fuel requirement in 2012 too, according to a separate filing on Aug. 19.

To contact the reporter on this story: Lucia Kassai in Houston at lkassai@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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