Ethanol’s Discount to Gasoline Widens as Stockpiles Recover

Ethanol’s discount to gasoline expanded as production gains helped inventories jump to a six-month high.

The discount to gasoline widened 3.24 cents to 88.92 cents a gallon. U.S. output increased 4.3 percent, allowing stockpiles to rise to the highest level since July 19, data from the Energy Information Administration showed yesterday.

“There is follow-through weakness from the EIA report yesterday,” said Sean Wever, a biofuels broker at Green Key Markets LLC in Chicago.

Denatured ethanol for February delivery slid 3.1 cents, or 1.7 percent, to settle at $1.774 a gallon on the Chicago Board of Trade. It was the lowest price since Dec. 13. Futures have fallen 26 percent in the past year.

Gasoline for February delivery was little changed at $2.6632 a gallon on the New York Mercantile Exchange from $2.6618 yesterday. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol posted a third straight weekly decline as stockpiles are recovering, which could be a sign of sagging demand for higher ethanol blends like the E85 or lower exports, Wever said.

The U.S. exported 41,000 barrels of ethanol a day in October, down 4.7 percent from the previous month, the latest data from the EIA shows.

Corn for March delivery gained 0.5 cent to $4.295 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The corn crush spread, or the price difference between a bushel of corn and a gallon of ethanol, was 17 cents, down from 20 cents yesterday.

Spot Market

In cash market trading, ethanol declined in all major regions. The biofuel fell 9 cents to $2.095 a gallon in New York, 2.5 cents to $1.815 in Chicago, 2 cents to $2.005 on the Gulf Coast and 2 cents to $2.195 on the West Coast, data compiled by Bloomberg show.

Chicago’s discount to New York narrowed 6.5 cents to 28 cents, while the West Coast’s premium to the Gulf was unchanged at 19 cents.

The U.S. tracks compliance with ethanol consumption mandates using Renewable Identification Numbers, certificates attached to each gallon of biofuel that are submitted to the government and also traded among refiners.

Corn-based ethanol RINs for 2014 advanced 0.5 cent to 33 cents and RINs for 2013 rose 1 cent to 34 cents, data compiled by Bloomberg show.

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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