Ethanol Trails Gasoline as ‘Blend Wall’ Sends RINs to Record

Ethanol weakened against gasoline as the value of renewable identification numbers for the corn-based biofuel jumped to a record on concern production and consumption won’t meet U.S. targets.

The spread expanded 0.42 cent to 69.15 cents a gallon a day after prices for RINs jumped to a record 90.5 cents from 77 cents on March 6, data compiled by Bloomberg show. Refiners use RINs, the certificates that help the Environmental Protection Agency track whether refiners are meeting federal biofuel-use mandates, in lieu of blending a physical gallon of ethanol. Stagnant gasoline demand plus higher ethanol consumption targets is known as the “blend wall.”

“It’s the blend wall that’s holding it back,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “You can see that in the RINs rather than it actually being blended.”

Denatured ethanol for April delivery rose 7.6 cents, or 3.1 percent, to $2.512 a gallon on the Chicago Board of Trade, the highest settlement since Sept. 7. The gain was the biggest in five months. Prices have gained 15 percent this year.

Gasoline futures for April delivery advanced 8.02 cents, or 2.6 percent, to $3.2035 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Advanced RINs

The value of Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, jumped to a record 84 cents yesterday from 79 cents the previous day.

Corn-based conventional RINs traded above the advanced variety for the first time yesterday.

Ethanol production has dropped 16 percent to 805,000 barrels a day in the week ended March 1 from a record 963,000 barrels in December 2011, data from the U.S. Energy Information Administration show.

That’s 12.3 billion gallons on an annualized basis and short of the 13.8 billion gallons refiners are required to use this year.

Drought in the Midwest devastated corn crops and raised production costs for the fuel, forcing at least 20 plants to idle since June, according to data from the Renewable Fuels Association in Washington.

Corn for March delivery added 13.75 cents, or 1.9 percent, to $7.2525 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The May contract gained 12.25 cents, or 1.8 percent, to $7.035 a bushel.

Crush Spread

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 8 cents a gallon, up from minus 11 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.

Stockpiles fell to 19.4 million barrels a day last week, about 12 percent lower than a year ago, and production was 11 percent lower than last year, the EIA said in the March 6 report.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool last week, the highest level since Oct. 5, according to data from the EIA, the statistical arm of the Energy Department.

In cash market trading, ethanol soared in the major trading hubs, data compiled by Bloomberg show.

Ethanol on the West Coast, the most expensive hub, jumped 14 cents to $2.765 a gallon, in New York the additive climbed 6 cents to $2.58, in Chicago it added 5 cents to $2.46 and in the U.S. Gulf the fuel jumped 5.5 cents to $2.52 a gallon.

West Coast ethanol’s premium to the Gulf ballooned to 24.5 cents, the highest since July 23, while Chicago’s discount to New York rose to 12 cents, the most since March 4, from 11 cents the previous day.

The country last week didn’t make any foreign purchases of the fuel for the first time since Feb. 1, the EIA report showed.

Spot ethanol in Sao Paulo cost $2.42 a gallon last week, cheaper than today’s futures price, data compiled by Bloomberg show.

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