Ethanol Narrows Discount to Gasoline on Low Production Levels

Ethanol’s discount to gasoline narrowed to the smallest level in 12 weeks with production of the additive below year-earlier levels and stockpiles of the motor fuel advancing.

The spread, or price difference, shrank 5.91 cents to 38.3 cents a gallon, the narrowest since Jan. 16. Yesterday the Energy Information Administration reported ethanol production last week was 4.7 percent below last year’s level and gasoline supplies rose 0.8 percent.

“We’ve got easily probably another billion gallons of capacity that can come online,” said Chris Wilson, an analyst at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for May delivery advanced 2.5 cents, or 1 percent, to $2.448 a gallon on the Chicago Board of Trade. Prices have gained 12 percent this year.

Gasoline for May delivery decreased 3.41 cents, or 1.2 percent, to $2.831 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol plunged 3 percent yesterday after the EIA reported production jumped 5.8 percent to 854,000 barrels a day, the most since June 29 and the biggest weekly gain since December 2010.

Returns to make the fuel have rebounded with rising corn stockpile estimates. Last year, prices for the grain reached a record in the wake of the worst U.S. drought since the 1930s.

Corn Forecast

The Agriculture Department forecast yesterday that inventories on Aug. 31 will be 757 million bushels, up from 632 million forecast in March.

Corn for May delivery rose 2.25 cents, or 0.4 percent, to $6.5125 a bushel 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 8 cents a gallon, up from 6 cents yesterday and from minus 35 cents at the end of 2012. 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 climbed 1.8 percent to 17.8 million barrels, the biggest weekly gain since Jan. 25 and the highest since March 15. Ethanol-blended gasoline made up a record 96 percent of the total U.S. gasoline pool, data from the Energy Department’s analytical arm showed.

No Imports

U.S. companies didn’t import any of the fuel last week, versus 49,000 barrels a day the previous week, EIA said. Spot ethanol in Sao Paulo last week cost $2.28 a gallon, data compiled by Bloomberg show. Sugarcane is used to make the fuel in Brazil.

The U.S. exported 49,000 barrels a day of ethanol in January, the most recent month data is available, the highest level since July, according to the EIA.

In cash market trading, ethanol rose 4 cents to $2.49 a gallon in Chicago, 3.5 cents to $2.645 in New York and 3.5 cents to $2.545 on the Gulf Coast, according to data compiled by Bloomberg. The price slipped 2 cents to $2.755 on the West Coast.

New York Harbor’s premium to Chicago decreased 0.5 cent to 15.5 cents. The Gulf Coast’s discount to the West Coast narrowed 5.5 cents to 21 cents.

Renewable Identification Numbers, or RINs, for corn-based ethanol declined 4.5 cents to 75.5 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 85 cents.

RINs are certificates assigned to each gallon of biofuel used to track compliance with the federal mandates and that can also be traded between refiners.