Ethanol Stronger Against Gasoline as Shutdowns Curtail

Ethanol strengthened against gasoline on speculation that plant shutdowns will help drain a glut of the biofuel and lift prices.

The spread narrowed 2.61 cents a gallon to 55.15 cents as at least five mills have been idled this year and the most recent Energy Information Administration report showed production at the lowest level since the agency began tracking weekly data in June 2010.

“The number of plant closures is definitely going to start taking a toll,” said Michael Slider, director of biofuels at Elgin, Iowa-based Fauser Energy Resources. “It’s going to get tight pretty quick and prices will go up.”

Denatured ethanol for March delivery fell 1.6 cents, or 0.6 percent, to $2.46 a gallon on the Chicago Board of Trade.

Gasoline for March delivery dropped 4.21 cents, or 1.4 percent, to $3.0115 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol.

Ethanol for February delivery decreased 2.9 cents, or 1.2 percent, to $2.44 a gallon. The contract expires tomorrow. Prices have gained 11 percent this year.

Production fell 2.8 percent to 770,000 barrels a day in the week ended Jan. 25, from the previous week, or 11.8 billion gallons on an annualized basis, the EIA report showed.

Slowing Production

Ag Processing Inc., a grains processor, on Feb. 1 became the latest company to stop operations, idling its plant in Hastings, Nebraska, because of high corn prices.

Valero Energy Corp., Abengoa SA, Poet LLC, White Energy Inc. and Biofuel Energy Corp. are among the producers that have temporarily shut distilleries after drought conditions in the Midwest reduced corn yield, increasing prices. Nineteen ethanol plants have been idled since June as the drought wilted the corn crop, according to the Renewable Fuels Association, a Washington-based trade group.

Corn for March delivery fell 1.75 cents to $7.3425 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The crush spread, or the price of ethanol minus the price of the corn needed to make it, is minus 21 cents a gallon.

The biofuel slipped in most spot market regions. The additive fell 0.5 cent to $2.57 a gallon in New York, 0.5 cent to $2.48 in Chicago and 0.5 cent to $2.63 on the West Coast and was unchanged at $2.52 a gallon in the U.S. Gulf, data compiled by Bloomberg show.

Renewable Fuels

Under a 2007 energy law, U.S. refiners are to use 13.8 billion gallons of renewable fuels, such as ethanol this year and 15 billion by 2015.

Stockpiles rose 2.3 percent to 20.5 million barrels, the highest since Dec. 14, the EIA report showed. Ethanol-blended gasoline made up 87 percent of the total U.S. gasoline pool in the week ended Jan. 25, down from 90 percent a year earlier.

Slider said an influx of Brazilian supply into states in the Southeastern U.S., such as Florida, has exacerbated the glut of the fuel and displaced product from the ethanol-dense Midwest.

“If it fills up tanks in Florida, that stops shipments from the Midwest,” Slider said. “Definitely the Florida market is well supplied by imports and you can even say oversupplied.”

Imports averaged 9,000 barrels a day in the week ended Jan. 25, up 80 percent from a year earlier, EIA data showed.

Spot ethanol in Sao Paulo cost $2.21 a gallon last week, data compiled by Bloomberg show, about 9.4 percent cheaper than today’s U.S. futures price. Imports from Brazil totaled 1.4 million barrels in November, more than double the amount from a year earlier, Energy Department show.