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Ethanol Advances Versus Gasoline as Output Slumps to 15-Week Low

Aug. 2 (Bloomberg) -- Ethanol gained against gasoline after production of the biofuel tumbled to the lowest level in more than three months.

The spread, or price difference, tightened 3.37 cents to 80.97 cents a gallon, based on September contracts for the motor fuel and additive. The most recent Energy Information Administration report showed output plunged a third week in the period ended July 26 to the least since April 12.

“Production is off more than 5 percent from the month’s highs,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “There’s a concern about production.”

Denatured ethanol for September delivery was unchanged at $2.185 a gallon on the Chicago Board of Trade. The August contract, which expires Aug. 5, advanced 0.1 cent to $2.29.

Gasoline for September delivery decreased 3.37 cents, or 1.1 percent, to $2.9947 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up about 91 percent of the total U.S. gasoline pool last week, the lowest level since May 31, according to data from the EIA, the Energy Department’s research arm.

Kitt said ethanol’s discount to gasoline will lift demand from refiners looking to pocket the difference between the two.

Ethanol, made from corn in the U.S., is blended with gasoline as part of U.S. plans to reduce dependence on foreign sources of crude oil.

RINs Prices

Compliance with the law is tracked by Renewable Identification Numbers, or RINs, which are attached to each gallon of biofuel and that can be traded among refiners.

Corn-based ethanol RINs decreased 3 cents yesterday to $1.06, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 4 cents to $1.11.

Corn for September delivery slumped 11.5 cents, or 2.4 percent, to $4.76 a bushel in Chicago. The more-actively traded December contract declined 3.25 cents to $4.6375.

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 45 cents, up from 42 cents yesterday, data compiled by Bloomberg show.

In cash market trading, ethanol in Chicago tumbled 7 cents to $2.28 a gallon; in the U.S. Gulf prices slumped 6.5 cents to $2.375; in New York the additive slid 3 cents to $2.435; and on the West Coast the biofuel sank 2 cents to $2.465 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf expanded 4.5 cents to 9 cents, while Chicago’s discount to New York Harbor widened 4 cents to 15.5 cents, the largest since May 13.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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