Ethanol Gains on Gasoline as Prices Tumble Most Since November

Ethanol gained for a second day against gasoline as prices for the motor fuel plunged the most since November and as biofuel producers tempered output.

The spread narrowed 5.87 cents to 69.45 cents a gallon, the smallest difference since Feb. 13 and the biggest one-day contraction since Jan. 15, according to futures market data compiled by Bloomberg. More than a dozen ethanol companies have idled output since June to stem losses, and stockpiles have fallen to the lowest level in 10 weeks.

“The thing to be looking at is production with the shutdowns in place,” said Jeffrey DeReamer, an ethanol broker at ICAP Energy in Lexington, Kentucky. “Production is the key at this point. That’s been supporting ethanol.”

Denatured ethanol for March delivery fell 0.3 cent to $2.365 a gallon on the Chicago Board of Trade. Futures have advanced 8 percent this year.

Gasoline for March delivery tumbled 6.17 cents to $3.0595 a gallon on the New York Mercantile Exchange. The 2 percent drop was the most since Nov. 7.

Ethanol output in the week ended Feb. 8 averaged 789,000 barrels a day, 18 percent lower than the record 963,000 barrels a day on Dec. 30, 2011, according to the Energy Information Administration, the Energy Department’s statistical arm.

That’s helped the industry reduce stockpiles by 14 percent to 19.5 million barrels from the all-time high of 22.7 million in the week ended March 16, 2012, according to the EIA.

Plants Idled

Ethanol producers including Poet LLC, the largest U.S. maker of the fuel, No. 3 Valero Energy Corp. and Abengoa SA have idled plants to alleviate a glut and navigate higher production costs caused by more expensive corn since drought in the U.S. devastated yields.

Corn for March delivery rose 5.25 cents, or 0.8 percent, to $7.005 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. Corn futures rose to a record $8.49 a bushel in August as drought in the Midwest cut yields.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 18 cents, compared with minus 16 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Brazil Competition

DeReamer said ethanol prices have also received a boost as gains for the Brazilian grade make it less competitive with domestic supply.

Spot ethanol in Sao Paulo cost $2.38 a gallon last week, according to data compiled by Bloomberg, more expensive than today’s futures price.

The country is the largest seller of ethanol to the U.S. Imports have plunged 87 percent since Dec. 28 to 11,000 barrels a day as of Feb. 8, EIA data show.

Gasoline retail prices have climbed for 34 consecutive days to $3.766 a gallon, AAA said today on its website.

Ethanol-blended gasoline made up 89 percent of the total U.S. gasoline pool as of Feb. 8, the highest level in four weeks, the EIA said in its most recent report.

In cash market trading, ethanol in New York rose 1 cent to $2.455 a gallon, in Chicago the additive increased 1.75 cents to $2.3625, in the U.S. Gulf the fuel added 0.5 cent to $2.405 and on the West Coast ethanol dropped 1 cent to $2.525 a gallon, data compiled by Bloomberg show.

New York’s premium to Chicago was 9.25 cents, the lowest since Feb. 4. Ethanol on the West Coast, the most expensive U.S. hub, was 12 cents costlier than in the U.S. Gulf.

The value of Renewable Identification Numbers, known as RINs, for advanced forms of ethanol, which include the Brazilian variety, was at 52 cents yesterday, or 79 percent more expensive than the 29-cent price of the conventional sort, data compiled by Bloomberg show.

RINs are credits that help the government track whether refiners are meeting federal biofuel use mandates.

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