Ethanol Strengthens Against Gasoline on Near Record RINs Value

Ethanol’s discount to gasoline narrowed to the lowest in more than a week as the motor fuel plunged and as the value of renewable identification numbers, or RINs, for biofuel blending was near a record.

The spread contracted 8.31 cents to 60.84 cents a gallon as production costs reduced output to the least for this time of year in records going back to 2010. Prices for corn-ethanol-based RINs climbed fell to $1.01, from a record $1.06 on March 8. Refiners use the certificates to comply with government renewable-fuel mandates in lieu of blending.

“We’re certainly seeing a lot of activity in RINs,” said Michael Slider, director of business development at Elgin, Iowa-based Fauser Energy Resources. “With production off, people are grabbing RINs to meet their requirements.”

Denatured ethanol for April delivery rose 3.2 cents, or 1.3 percent, to $2.544 a gallon on the Chicago Board of Trade, the highest price since Sept. 4. Prices have gained 16 percent this year.

Gasoline futures for April delivery slumped 5.11 cents, or 1.6 percent, to $3.1524 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.

Blend Wall

The surging RIN prices probably will be a “a wash” for most refiners as the costs are passed through to the crack spread, or the premium of the fuel over crude, Doug Leggate, an analyst at Bank of America Merrill Lynch, said in a note to clients today.

Slider said lackluster gasoline demand and rising ethanol consumption targets, a phenomenon known as the blend wall, is causing the surge in RIN prices.

“With fuel demand off they’re hitting the blend wall,” he said.

The value of Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, was unchanged at a record $1.08.

Ethanol production dropped 16 percent to 805,000 barrels a day, or 12.3 billion gallons on an annualized basis, in the week ended March 1 from a record 963,000 barrels a day in December 2011, according to data from the U.S. Energy Information Administration, the statistical arm of the Energy Department.

Corn for March delivery added 9.25 cents, or 1.3 percent, to $7.345 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The May contract climbed by 7.75 cents to $7.1125 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, unchanged from March 8. 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 of the fuel in the week ended March 1 fell to 19.4 million barrels, the lowest level since November 30, EIA data show.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool, up from 88 percent the previous week and the highest in five months, the Energy Department’s analytical arm said in the March 6 report.

Producers of the fuel didn’t have to contend with imports for the first time since Feb. 1, EIA said.

Spot ethanol in Sao Paulo was $2.42 a gallon last week, according to data compiled by Bloomberg.

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

Ethanol in the U.S. Gulf jumped 15 cents to $2.67 a gallon; in Chicago the additive increased 14.25 cents to $2.6025; in New York the biofuel climbed 9.5 cents to $2.675; and on the West Coast, the most expensive trading point, ethanol added 9.5 cents to $2.86 a gallon.

West Coast ethanol’s premium to the Gulf narrowed 5.5 cents to 19 cents, while Chicago’s discount to New York narrowed 4.75 cent to 7.25 cents, the lowest since Jan. 22.

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