Ethanol Weakens to Three-Week Low Versus Gasoline on Gaza Unrest

Ethanol weakened to a three-week low against gasoline on concern that unrest in the Middle East will disrupt crude supply.

The additive’s discount to the motor fuel widened to 37.15 cents a gallon from 35.91 cents Nov. 16, based on December futures prices, the most since Oct. 29.

Gasoline followed crude oil higher as Israeli ground forces were poised to invade the Gaza Strip for the first time in almost four years if cease-fire efforts fail. Ethanol is blended with the motor fuel to augment supply and reduce U.S. dependence on fossil fuels.

“We’re higher on the crude oil,” said Dan Flynn, a trader at Price Futures Group in Chicago. “There’s fear-factor in the market. This is scary stuff.”

Denatured ethanol for December delivery rose 3.2 cents, or 1.4 percent, to $2.383 a gallon on the Chicago Board of Trade. Prices have gained 8.2 percent this year.

Gasoline for December delivery advanced 4.44 cents, or 1.6 percent, to $2.7545 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

The fuels also rose after President Barack Obama said yesterday in Bangkok that he was “confident” of an agreement to avert $607 billion in automatic tax increases and spending cuts.

Piling On

“Everything just seems so bullish,” Flynn said. “We’re pouring gasoline on a fire. It’s like, what else can you pile on?”

In cash market trading, ethanol in New York added 2.5 cents, or 1 percent, to $2.455 a gallon and on the West Coast the additive climbed 1.5 cents, or 0.6 percent, to $2.505, according to data compiled by Bloomberg.

Ethanol in the U.S. Gulf gained 1 cent to $2.42 a gallon and in Chicago the biofuel increased 0.5 cent to $2.355.

Corn for March delivery jumped 11.5 cents, or 1.6 percent, to $7.425 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Ethanol received a boost after the Environmental Protection Agency rejected a request from the governors of eight U.S. states to waive requirements for blending the corn-based fuel into gasoline, a mandate they said was driving up food costs during the worst drought in a half century, Flynn said.

U.S. refiners are required to blend 13.2 billion gallons of ethanol into gasoline this year and 15 billion gallons by 2015, under the 2007 energy law that established the Renewable Fuels Standard.

Corn Harvest

This year’s corn harvest was forecast at 10.725 billion bushels, the smallest in six years, according to U.S. Agriculture Department estimates. About 4.5 billion bushels, or 42 percent of the 2012 crop, will be used to make ethanol.

Based on December contracts for corn and ethanol, producers are losing 30 cents on each gallon of the fuel made, up from 29 cents Nov. 16, excluding the revenue that can be pocketed from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.

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