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Ethanol’s Discount to Gasoline Expands to Widest in Three Months

July 12 (Bloomberg) -- Ethanol’s discount to gasoline expanded to the widest in more than three months as prices for the motor fuel rallied and on speculation improving returns to make the additive will boost supply.

The spread, or price difference, swelled 11.61 cents to 66.85 cents a gallon as gasoline futures jumped on concern unplanned refinery outages will curtail production. Seasonally above-average ethanol prices are attracting higher returns for the biofuel and attracting imports. Renewable Identification Numbers, or RINs, rose to a record.

“The significance is that you’re weaker, but you’re stronger relative to corn,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “The market trying to find a balance between a bullish spot situation and the potential for a build-out over the next six months.”

Denatured ethanol for August delivery fell 2 cents, or 0.8 percent, to $2.449 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.

Gasoline for August delivery climbed 9.61 cents, or 3.2 percent, to $3.1175 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Production of ethanol, made mostly from corn in the U.S., climbed 2.1 percent to 881,000 barrels last week from the previous week, a July 10 report from the Energy Information Administration showed.

Ethanol Certificates

The U.S. uses RINs, certificates attached to each gallon of biofuel, to track compliance with government mandates to use the biofuel.

Corn-based ethanol RINs rose 7 cents to $1.20, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, added 7 cents to $1.23, data compiled by Bloomberg show.

Advanced certificates traded at 55 cents on Jan. 2 and the corn-based variety cost 7 cents that day.

Corn for September delivery fell 15.25 cents, or 2.7 percent, to $5.455 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts for the grain and biofuel, was 32 cents, compared with 28 cents yesterday, data compiled by Bloomberg show.

Fuel Shipments

Ethanol imports have averaged 19,000 barrels a day through July 5, according to data from the Energy Department’s research arm, up from 8,000 barrels a day a year earlier.

Anhydrous ethanol in Sao Paulo cost $2.22 a gallon as of July 5, the lowest price since Nov. 9, data compiled by Bloomberg show.

In cash market trading, ethanol in New York added 4 cents to $2.65 a gallon; in the U.S. Gulf prices increased 1 cent to $2.555; and in Chicago and on the West Coast prices were unchanged at $2.535 and $2.665 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf narrowed 1 cent to 11 cents, the lowest since June 27, while Chicago’s discount to New York Harbor swelled 4 cents to 11.5 cents, the widest since June 12.

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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