Ethanol’s Discount to Gasoline Swells as Spot Price Spurs Output

Ethanol’s discount to gasoline expanded as higher prices in the East Coast spot market spurred producers to increase output.

The spread widened 0.34 cent to 86.77 cents a gallon as ethanol prices in New York Harbor rose to a seven-year high this month and are above average for this time of year. Inventories in the region climbed 3.8 percent in the week ended Dec. 6 from a record low, Energy Information Administration data show.

“You had the New York market strong and they were going to get gallons out there even if they had to put it in a truck,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “We did see a stockpile increase in the East Coast.”

Denatured ethanol for January delivery rose 1.1 cents, or 0.6 percent, to settle at $1.776 a gallon on the Chicago Board of Trade. Prices have dropped 19 percent this year.

Gasoline for January delivery advanced 1.44 cents, or 0.6 percent, to $2.6437 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

In cash market trading, ethanol in New York gained 7.5 cents to $2.45 a gallon, while in Chicago the biofuel rose 3 cents to $2.10, according to data compiled by Bloomberg. Prices on the West Coast dropped 2.5 cents to $2.325, and in the U.S. Gulf ethanol jumped 3 cents to $2.20 a gallon,

New York’s premium to Chicago expanded 4.5 cents to 35 cents and the Gulf’s discount to the West Coast narrowed 5.5 cents to 12.5 cents.

Fuel Output

Ethanol production in the week ended Dec. 6 reached 944,000 barrels a day, the highest since Jan. 6, 2012, data show from the EIA, the Energy Department’s statistical arm. That’s 23 percent higher than the record low of 770,000 barrels a day averaged in the week ended Jan. 25.

“We’re not at a record, but we’re producing at a high level,” Blackford said.

U.S. stockpiles have rebounded 3.3 percent to 15.4 million barrels from an all-time low in October, the data show.

Consumption is tracked by Renewable Identification Numbers, certificates attached to each gallon of ethanol that are submitted to the Environmental Protection Agency and that can also be traded among refiners.

Corn-based ethanol RINS traded at 29 cents and advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol cost 29.5 cents, according to data from StarFuels Inc., a Jupiter, Florida-based brokerage.

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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