Ethanol’s Discount to Gasoline Tightens on Lower Production Rate

Ethanol’s discount to gasoline narrowed a sixth day after a government report showed output of the fuel slumped to a three-week low.

The spread, or price difference, tightened 3.65 cents to 64.17 cents a gallon after the Energy Information Administration said production last week fell 1.5 percent to 844,000 barrels a day, the lowest level since July 26.

“We’re firm,” said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa. “We continue to draw down production a little bit. We’re in that time of year in between old-crop and new-crop corn, where plants may take some downtime for maintenance.”

Denatured ethanol for September delivery advanced 4.7 cents, or 2.1 percent, to $2.296 a gallon on the Chicago Board of Trade. Futures have gained 4.8 percent this year.

Gasoline for September delivery rose 1.05 cents to $2.9377 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 92 percent of the total U.S. gasoline pool in the week ended Aug. 16, down from 94 percent the previous period, data from the EIA, the Energy Department’s analytical arm, show.

The additive is made from corn in the U.S. Blackford said tight supplies of the grain before next month’s harvest may prompt companies to reduce operations.

Corn Supplies

Corn inventories will be 27 percent lower than a year earlier before the harvest, according to U.S. Agriculture Department estimates.

Corn for September delivery jumped 14.25 cents, or 3 percent, to $4.98 a bushel in Chicago. The more actively traded December contract added 7.75 cents to $4.8325.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts, was 49 cents, unchanged from yesterday, data compiled by Bloomberg show.

Ethanol stockpiles gained 0.4 percent to 16.5 million barrels, today’s EIA report showed, while imports sank 47 percent to 19,000 barrels a day.

Gasoline demand over four weeks was 2 percent above the same period a year ago, the EIA said. That should lead to higher ethanol prices, said Michael Breitenbach, a broker and director of research at Blue Ocean Brokerage LLC in New York.

“The continuing presence of gasoline demand numbers this summer could perhaps represent the beginning of a trend and is supportive of the view that the U.S. economy is experiencing a nascent return to growth,” he said.

Ethanol RINs

The government uses tracking certificates, known as Renewable Identification Numbers, or RINs, to determine compliance with mandates to use the fuel.

Corn-based ethanol RINs slid 1 cent to 75 cents while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, decreased 2 cents to 82 cents, data compiled by Bloomberg show.

In cash market trading, ethanol in New York advanced 9 cents to $2.58 a gallon; in the U.S. Gulf, prices increased 5.5 cents to $2.48; on the West Coast, ethanol added 5 cents to $2.58; and in Chicago, the biofuel gained 4.5 cents to $2.38 a gallon, data compiled by Bloomberg show.

Chicago’s discount to New York Harbor expanded 4.5 cents to 20 cents, while the West Coast’s premium to the Gulf slimmed 0.5 cents to 10 cents.

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