Ethanol’s Discount to Gasoline Narrows as Obama Rejects Waiver

Ethanol’s discount to gasoline narrowed after the Obama administration rejected requests to waive requirements for blending the fuels.

Ethanol rose 1.6 cents, or 0.7 percent, to $2.351 a gallon on the Chicago Board of Trade, contracting the additive’s discount to gasoline to 35.91 cents a gallon from 36.12 cents yesterday, based on December futures prices. Gasoline’s premium was 99.8 cents on Sept. 28.

Gasoline refiners will be required to blend 13.2 billion gallons of the biofuel this year, the Environmental Protection Agency said in rejecting petitions seeking the waiver from the governors of Arkansas, North Carolina, Maryland, Delaware, Georgia, Virginia, New Mexico and Texas. Market conditions don’t justify such a move, the agency said in an e-mailed statement.

“The Obama election victory kind of telegraphed this,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “He’s thought of as supporting green energy. It’s more or less baked into the market.”

Gasoline for December delivery rose 1.39 cents, or 0.5 percent, to $2.7101 a gallon on the New York Mercantile Exchange while corn for March delivery advanced 0.8 percent to $7.31 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

In cash market trading, ethanol in the U.S. Gulf dropped 1.5 cents to $2.41 a gallon and in Chicago the additive was unchanged at $2.35, data compiled by Bloomberg show.

Spot Trading

Ethanol in New York tumbled 2 cents to $2.43 a gallon and on the West Coast the biofuel slipped 0.5 cent to $2.49.

Ethanol-blended gasoline made up about 90 percent of the total U.S. gasoline pool in the week ended Nov. 9, down from 92 percent in the prior period and the lowest level in four weeks.

This year’s U.S. corn harvest is forecast at 10.7 billion bushels, the smallest in six years because of the worst U.S. drought since the 1950s, the Agriculture Department said Nov. 9. About 4.5 billion bushels will be used to make ethanol in the year starting Sept. 1, or 42 percent of the 2012 crop, department estimates show.

Under a 2007 energy law, the EPA can suspend the mandate for blending ethanol with gasoline to stretch supplies if the requirement would severely harm the economy of a state, region or the U.S. The legislation calls for the U.S. to use 15 billion gallons of corn-based ethanol annually by 2015.

Production Down

Ethanol production is down 14 percent this year to 824,000 barrels a day, on pace to drop on an annual basis for the first time since 1996 as companies wrestle with declining margins for making the fuel from corn, Energy Department data show.

Based on December contracts for corn and ethanol, producers are losing 29 cents on each gallon of the fuel made, up from 28 cents yesterday, excluding the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.

Ethanol companies would have been decimated if the EPA granted the waiver request, Kitt said.

“You could really hurt the market here,” Kitt said. “It would wipe you out.”

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