Ethanol Discount to Gasoline Gains a Seventh Day on Drawdown

Ethanol’s discount to gasoline widened for a seventh day after a government report showed record low production and rising stockpiles while inventories of the motor fuel dropped to a one-month low.

The spread gained 1.43 cents to 58.27 cents a gallon at, the widest in almost four weeks, after the Energy Information Administration said ethanol stockpiles rose to a six-week high even as output fell to a record low 770,000 barrels a day. The report from the Energy department’s statistical arm also showed that inventories of gasoline unexpectedly fell last week.

“It’s a sign that you’re starting to see impact from all of the idle ethanol plants,” said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. “The supply is still fairly large.”

Denatured ethanol for February delivery rose 5.1 cents, or 2.1 percent, to $2.456 a gallon on the Chicago Board of Trade, the highest since Oct. 11. Prices have advanced 12 percent in January, heading for the first monthly gains since October.

Gasoline for February delivery jumped 6.53 cents, or 2.2 percent, to $3.0387 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

The discount of the grain-based additive to gasoline was the widest since Jan. 4, based on prompt-month futures contracts. Ethanol’s streak of losses versus the motor fuel is the longest since February 2010.

Ethanol stockpiles totaled 20.5 million barrels as of Jan. 25, up 2.3 percent from the previous week, the EIA said.

Corn Prices

Corn for March delivery increased 10.75 cents, or 1.5 percent, to $7.4025 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on March contracts, producers are losing 22 cents on each gallon of the fuel, down from 23 cents yesterday, according to data compiled by Bloomberg. The figures exclude the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock.

Ethanol would increase and output would recover if gasoline consumption were to improve, Reilly said.

Demand for the motor fuel last week was lower-than-average for this time of year, Bloomberg data shows.

Ethanol-blended gasoline made up about 87 percent of the total U.S. gasoline pool in the week ended Jan. 25, compared with 88 percent the previous week, today’s EIA report showed.

Brazilian Ethanol

Imports of the biofuel fell to 9,000 barrels a day last week, down from 67,000, the previous week. That’s still 80 percent higher than a year earlier. Brazil was the largest source of ethanol imports in October, according to the EIA.

Spot ethanol in Sao Paulo cost $2.13 a gallon in the week ended Jan. 25, data compiled by Bloomberg show, about 11 percent cheaper than today’s U.S. futures price. Brazilian ethanol, derived from sugarcane, is less expensive than the corn-manufactured U.S. grade.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, will increase gasoline prices at refineries by 6.6 percent, according to Securities and Exchange Commission filing yesterday, boosting demand for ethanol.

Brazil said today that it will increase the ethanol mix in gasoline to 25 percent in May from 20 percent.

Ethanol prices advanced in spot market trading. The fuel in New York harbor rose 5.5 cents to $2.55 a gallon at noon East Coast time, according to data compiled by Bloomberg. Ethanol increased 0.5 cent to $2.41 a gallon in Chicago, 1.5 cents to $2.475 in the U.S. Gulf and 2 cents to $2.615 on the West Coast.

Ethanol in Chicago was 14 cents cheaper than in New York, the widest spread since July. The discount of West Coast prices to ethanol in the Gulf widened to 14 cents from 13.5 cents yesterday.

Before it's here, it's on the Bloomberg Terminal.