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Ethanol Weakens Against Gasoline as Supply Weighs on Fuel

Feb. 28 (Bloomberg) -- Ethanol’s discount to gasoline widened from the lowest level in more than a month as gains for the motor fuel outpaced the biofuel.

The spread widened 3.81 cents to 50.96 cents a gallon on speculation that production will exceed the “blend wall,” the maximum amount of ethanol the nation can use in the gasoline supply. Last year, demand was about 820,000 barrels a day, Energy Information Administration data showed.

Output in the U.S. rose 1.9 percent last week to 812,000 barrels a day, the fourth straight weekly advance, the EIA, the Energy Department’s statistical arm, said yesterday.

“Some traders think the blend wall will only allow so much ethanol to be used in the future and that would keep a lid on prices a little,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago.

Denatured ethanol for March delivery rose 2 cents, or 0.8 percent, to $2.405 a gallon on the Chicago Board of Trade. Futures declined 2.2 percent in February. They gained 4.3 percent in February 2012.

Gasoline for March delivery, which expires today, rose 5.81 cents, or 2 percent, to $2.9146 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol. The price fell 3.7 percent in February.

The value of Renewable Identification Numbers, or RINs, for corn-based ethanol reached a record 53 cents yesterday, according to Blue Ocean Brokerage LLC in New York. RINs are credits that help the Environmental Protection Agency track compliance with federal biofuel-use mandates, which call for U.S. refiners to use 13.8 billion gallons of ethanol, or 900,000 barrels a day, this year and 14.4 billion next year.

Corn Prices

Ethanol-blended gasoline made up 88 percent of the total U.S. gasoline pool in the week ended Feb. 22, down from 90 percent the previous week, the EIA reported.

Ethanol rose from its lowest discount to gasoline since Jan. 25 as corn for March delivery climbed 10 cents, or 1.4 percent, to $7.195 a bushel in Chicago. That’s the fourth consecutive advance for the grain. One bushel makes at least 2.75 gallons of ethanol.

“Ethanol is higher because of higher corn prices and its discount to the RBOB market,” Reilly said.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 21 cents, compared with minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

The biofuel rose in all regions in cash market trading, according to data compiled by Bloomberg. Spot prices advanced 0.5 cent to $2.525 a gallon in New York, 2 cents to $2.47 on the Gulf Coast, 2 cents to $2.60 a gallon on the West Coast and 3.5 cents to $2.415 in Chicago.

In Sao Paulo, the fuel was $2.43 a gallon on the spot market last week, according to data compiled by Bloomberg.

To contact the reporter on this story: Kenneth Christensen in New York at kchristense9@bloomberg.net

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

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