Ethanol’s Discount to Gasoline Narrows as Stockpiles Plunge

Ethanol’s discount to gasoline narrowed after a report showed dwindling stockpiles of the additive while prices for the motor fuel plunged on concern of oversupply.

The price difference, or spread, contracted 9.67 cents to 26.03 cents a gallon based on June futures contracts. The Energy Information Administration report showed that ethanol stockpiles fell to the lowest level since November 2011, and that gasoline inventories on the East Coast were the highest in more than a year. Renewable Identification Numbers extended gains.

“The trade teed off with the stock draw,” said Mike Blackford, a consultant at INTL FCStone in Des Moines, Iowa. “Obviously we’ve got pressure with the outside markets.”

Denatured ethanol for June delivery rose 1.4 cents, or 0.6 percent, to $2.459 a gallon on the Chicago Board of Trade. The May contract, which expires May 3, added 1.7 cents to $2.599.

Gasoline for June delivery tumbled 8.17 cents, or 2.9 percent, to $2.7193 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-blended gasoline made up about 96 percent of the total U.S. gasoline pool in the week ended April 26, up from 93 percent the previous week and the most since April 5, the report from the Energy Department’s analytical arm showed.

Supply Decline

Stockpiles of the biofuel plummeted 3.2 percent to 17 million barrels, the biggest weekly decline since March 22 and the lowest level since Nov. 4, 2011, EIA said.

Inventories have dropped as production recovered from a drought last summer that boosted corn prices and caused ethanol companies to reduce operations.

Corn for May delivery fell 1.5 cent to $6.8175 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread was 12 cents a gallon, up from 10 cents yesterday. That compares with minus 35 cents on Dec. 31. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Ethanol output increased 0.5 percent last week to 857,000 barrels a day, the highest since June 29, EIA data show. That’s still down 4.1 percent from a year earlier.

Corn-based ethanol RINs rose 4.1 percent to 76.5 cents, the highest since April 10, and a fifth day of gains, data compiled by Bloomberg show.

Advanced RINs, which cover biodiesel and Brazilian sugarcanes ethanol, increased 3.8 percent to 81 cents, the costliest since April 22.

Government Mandates

RINs are certificates attached to each gallon of biofuel and used by the government to track compliance with government mandates for blending with petroleum. Refiners can maintain the RIN or trade it.

The U.S. didn’t make any foreign purchases of the biofuel last week after importing 39,000 barrels a day the previous week, EIA data show.

Anhydrous ethanol in Sao Paulo cost $2.58 a gallon as of April 26, data compiled by Bloomberg show.

The U.S. exporting 36,000 barrels of ethanol a day in February, EIA data show, down 27 percent from January and the lowest since November.

In cash market trading, ethanol was unchanged in the U.S. Gulf at $2.555 a gallon and on the West Coast at $2.775; in New York the fuel rose 1.5 cents to $2.715; and in Chicago the additive increased 1 cent to $2.575 a gallon, data compiled by Bloomberg show.

West Coast ethanol’s premium to the U.S. Gulf was unchanged at 22 cents, while Chicago’s discount to New York Harbor expanded 0.5 cent to 14 cents.

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