Ethanol’s Discount to Gasoline at Narrowest Point in Four Months

Ethanol’s discount to gasoline reached the narrowest level in four months as the biofuel gained on a drop in production.

The spread, or price difference, tightened 10.68 cents to 27.1 cents a gallon, the least since Dec. 10, after the Energy Information Administration reported output fell 2.6 percent to 832,000 barrels a day, the lowest for this time of year in records begun in June 2010 and 5.9 percent below year-earlier levels. Renewable Identification Numbers, or RINs, were mixed.

“Today’s EIA release was somewhat bullish, reporting lower production and a small draw in inventories,” said Michael Breitenbach, an analyst and trader at Blue Ocean Brokerage LLC in New York.

Denatured ethanol for May delivery rose 5.4 cents, or 2.3 percent, to $2.458 a gallon on the Chicago Board of Trade, the biggest one-day advance since March 8. Prices have gained 12 percent this year.

Gasoline for May delivery plunged 5.28 cents, or 1.9 percent, to $2.729 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 production has struggled to rebound to levels before last summer’s drought in the U.S. wilted corn crops and eroded returns to manufacture the biofuel.

Advanced RINs

The worth of corn-based ethanol RINs was unchanged at 71 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, sank 7 cents to 79 cents.

RINs are certificates attached to each gallon of biofuel that are submitted to the Environmental Protection Agency to show compliance with a 2007 energy law, known as the Renewable Fuels Standard. The credits can also be traded among obligated parties.

Corn for May delivery fell 2.75 cents, or 0.4 percent, to $6.605 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 6 cents a gallon, up from minus 1 cent 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.

Lower output has helped drain supply of the biofuel, EIA data show. At least 20 companies halted output as a result of the drought, according to the Renewable Fuels Association, a Washington-based trade group.

Stockpiles Fall

Ethanol stockpiles, at 17.5 million barrels, are down 20 percent from a year earlier, EIA data show. They’ve dropped in 11 of 15 weeks this year.

The U.S. imported no ethanol for the second straight week. Companies imported 21,000 barrels a day a year earlier.

Brazil is the largest supplier of the biofuel to the U.S. Spot ethanol in Sao Paulo cost $2.46 a gallon last week, the highest since April 13, 2012, data compiled by Bloomberg shows.

In cash market trading, ethanol in New York gained 5.5 cents to $2.60 a gallon; in Chicago the additive increased 4 cents to $2.435; in the U.S. Gulf the biofuel jumped 4 cents to $2.495; and on the West Coast the renewable fuel added 2 cents to $2.76 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf contracted 2 cents to 26.5 cents and Chicago’s discount to New York Harbor widened 1.5 cents to 16.5 cents, the widest since Dec. 9, 2011.

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline supply last week, down from a record 96 percent the previous week, according to the EIA.

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