Ethanol Weakens Against Gasoline on Record Low Seasonal Demand

Ethanol weakened against gasoline on speculation that record low seasonal production has balanced supply and demand for the biofuel.

The spread expanded 5.1 cents to 57.36 cents a gallon, the widest in two weeks. The Energy Information Administration said last week that ethanol stockpiles are at the lowest level in almost four months while gasoline demand is the weakest since Jan. 11, shrinking the potential pool of the motor fuel with which ethanol can be blended.

“It sure has gone quiet, hasn’t it?” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “We’re basically somewhat balanced.”

Denatured ethanol for April delivery fell 0.3 cent to $2.537 a gallon on the Chicago Board of Trade. Prices have risen 16 percent this year.

April-delivery gasoline gained 4.8 cents, or 1.6 percent, to $3.1106 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.

Ethanol production has been tempered by difficulty in getting corn after the worst drought since the Dust Bowl era of the 1930s slashed yields, Blackford said.

Corn for May delivery fell 3 cents, or 0.4 percent, to $7.3025 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Crush Spread

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 14 cents a gallon, compared to minus 15 cents yesterday. The spread was more than twice that at the beginning of the year.

The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Output has dropped 16 percent from the record 963,000 barrels a day in December 2011 and stockpiles have fallen for a record seven consecutive weeks, according to data from the Energy Department’s analytical arm.

Blackford said ethanol prices have been capped by lackluster gasoline demand.

Consumption of the motor fuel in the week ended March 15 slid 3.5 percent to 8.3 million barrels a day, the lowest amount since Jan. 11, EIA data show.

Ethanol-blended gasoline made up a record 95 percent of the total U.S. gasoline pool, the report showed.

Imports Up

“There was a trickle of imports that showed up in the report,” Blackford said.

Ethanol imports averaged 27,000 barrels a day in the week ended March 15, the first time the U.S. has made foreign purchases of the fuel since Feb. 22, EIA said.

Competition from imports may be limited as Brazil, the largest supplier of the fuel to the U.S., begins its sugarcane harvest, Blackford said.

Spot ethanol in Sao Paulo fetched $2.28 a gallon in the week ended March 22, according to data compiled by Bloomberg.

In cash market trading, ethanol in New York slipped 1 cent to $2.65 a gallon; in Chicago the additive rose 1 cent to $2.55; in the U.S. Gulf the biofuel climbed 1 cent to $2.61; and on the West Coast the renewable fuel lost 2.5 cents to $2.775, according to data compiled by Bloomberg.

West Coast ethanol’s premium to the U.S. Gulf narrowed to 16.5 cents, the lowest level in a week, while Chicago’s discount to New York Harbor contracted to 10 cents, the narrowest gap since March 13.

Each gallon of biofuel introduced to the market is assigned a Renewable Identification Numbers, which is submitted by refiners to the Environmental Protection Agency to show compliance with the law or traded.

The value of corn-based RINs jumped 9.9 percent to 66.5 cents, while the worth of advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, gained 2.7 percent to 75 cents, data compiled by Bloomberg show.

Certificates for both grades of RINs rose to records on March 8.

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