Ethanol’s Discount to Gasoline Narrows on Reduced Inventories

Ethanol’s discount to gasoline shrank to a three-week low on reduced inventories of the biofuel on the East Coast and in the U.S. Gulf.

The spread slimmed 0.89 cent to 44.34 cents a gallon, the smallest difference between front-month contracts since March 19. An Energy Information Administration report last week showed stockpiles on the East Coast were 6.2 million barrels, 33 percent lower than a year ago and inventories in the U.S. Gulf were down 35 percent.

“In the Gulf and New York they may be short gallons,” said Mark Ruyack, a manager at StarFuels Inc., a Jupiter, Florida-based brokerage. “It’s showing itself in the price.”

Denatured ethanol for May delivery added 4.2 cents, or 1.7 percent, to $2.499 a gallon on the Chicago Board of Trade. Prices have gained 14 percent this year.

Gasoline futures for May delivery rose 3.31 cents, or 1.1 percent, to $2.9424 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Total U.S. stockpiles in the week ended March 29 were 17.5 million barrels, near the lowest level since December 2011 and 22 percent lower than a year ago, data from the Energy Department’s analytical arm show. The agency is set to report the latest figures tomorrow at 10:30 a.m. in Washington.

Ethanol production has yet to rebound to levels before the worst drought since the 1930s sent corn prices to a record, prompting some companies to idle output.

Crush Spread

Corn for May delivery climbed 10.75 cents, or 1.7 percent, to $6.4425 a bushel today in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was 16 cents a gallon, up from 15 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.

Output of the fuel in the week ended March 29 averaged 807,000 barrels a day, up 4.8 percent from the record low of 770,000 barrels a day on Jan. 25, EIA data show.

Ruyack said ethanol prices are also being supported by a slower pace of imports from Brazil, the biggest supplier of the fuel to the U.S. Ethanol imports averaged 49,000 barrels a day as of March 29, down 60 percent from the October 2012 high of 122,000 barrels, according to EIA.

Spot ethanol in Sao Paulo fetched $2.28 a gallon last week, data compiled by Bloomberg show.

Cash Market

In cash market trading, ethanol in New York jumped 10.5 cents to $2.69 a gallon, the highest price in more than two weeks, while the fuel climbed 7 cents to $2.62 in the U.S. Gulf, data compiled by Bloomberg show.

Ethanol in Chicago rose 6.5 cents to $2.56 a gallon and on the West Coast, the most expensive U.S. hub, prices added 6.5 cents to $2.78.

West Coast ethanol’s premium to the U.S. Gulf narrowed 0.5 cent to 16 cents. Chicago’s discount to New York widened 4 cents to 13 cents.

Under a 2007 law, the U.S. is required to use 13.8 billion gallons of ethanol this year. Compliance is tracked by Renewable Identification Numbers, or RINs, which are attached to each gallon of biofuel produced or imported. Once refiners blend the biofuel into petroleum, they can retain the RIN or trade it to another party.

RINs Rising

The value of corn-based ethanol RINs rose 5.5 cents to 91.5 cents, the highest price since March 11, data compiled by Bloomberg show. Advanced RINs gained 5.5 cents to 95 cents, also the highest level since March 11.

Ethanol and petroleum interests have argued over the reasons behind the surge in RINs values and the effect it may have on gasoline retail prices.

A bipartisan group of members of the House of Representatives plans to introduce legislation to reform the Renewable Fuels Standard, according to an e-mailed statement from Representative Bob Goodlatte, a Republican from Virginia.

Growth Energy, an ethanol lobby, said it’s planning a news conference to express support for the RFS.

Before it's here, it's on the Bloomberg Terminal.