Ethanol Outpaced by Gasoline on Concern Blend Wall to Cap Demand

Ethanol fell versus gasoline on concern that lackluster fuel demand will limit how much of the biofuel can be blended into petroleum.

The spread, or price difference, widened 0.48 cent to 26.64 cents a gallon. Gasoline demand over the past four weeks was 8.51 million barrels a day, a rate that would use 130.4 billion gallons in a year. Ethanol is blended with the motor fuel in a formula of as much as 10 percent and the U.S. has a mandate this year to use 13.8 billion gallons of the motor fuel, a phenomenon known as the blend wall.

“The only thing that worries me is the gasoline demand category,” said Jason Ward, an analyst at Northstar Commodity Investments Inc. in Minneapolis. “It’s key because if you start fading on gasoline demand, you will be capped. You won’t use as much ethanol.”

Denatured ethanol for June delivery rose 4 cents, or 1.6 percent, to $2.559 a gallon on the Chicago Board of Trade. The May contract, which expires today, slipped 1 cent to $2.703.

Gasoline for June delivery advanced 4.48 cents, or 1.6 percent, to $2.8254 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

If gasoline demand remains poor, it shrinks the pool in which ethanol can be blended, Ward said.

Ethanol Blending

Ethanol-blended gasoline made up about 96 percent of the total U.S. gasoline supply in the week ended April 26, up from 93 percent the previous week and the most since April 5, EIA said yesterday.

The U.S. is required to use 14.4 billion gallons of ethanol next year. Each gallon of biofuel is assigned a Renewable Identification Number, or RIN, to track compliance between the government and refiners. Once blenders mix renewable fuel with petroleum they can maintain the credit or trade it.

Concern about the blend wall has prompted an increase in the value of the certificates. PBF Energy Inc. said yesterday that it expects to spend $120 million in ethanol RINs this year and that it entered into the export market from the East Coast to reduce its exposure.

Corn-based ethanol RINs decreased 2 percent to 75 cents, up from 7 cents on Jan. 2, data compiled by Bloomberg show.

Advanced RINs, which cover biodiesel and Brazilian sugarcanes ethanol, decreased 2.4 percent to 83 cents. They traded at 55 cents on Jan. 2.

RIN Effects

Ethanol advocates and petroleum interests are battling about the effects of RINs on gasoline prices and whether the mandate should be repealed. The Environmental Protection Agency in 2011 approved blends of as much as 15 percent ethanol in gasoline for vehicles made after 2001.

Oil companies have resisted using the higher concentrations of ethanol, saying more testing is needed on its effect on engines.

Corn for May delivery gained 2 cents, or 0.3 percent, to $6.995 a bushel in Chicago.

The corn crush spread for may was 16 cents a gallon, down from 18 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.

Stockpiles of the fuel fell 3.2 percent to 17 million gallons last week, a May 1 Energy Information Administration report showed, while production expanded 0.5 percent to 857,000 barrels a day, the highest level since June.

Imports of the fuel last week dropped to none from 39,000 barrels a day the previous week, the Energy Department’s analytical arm said.

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

In cash market trading, ethanol gained 4 cents to $2.80 a gallon in New York, 4 cents to $2.66 in Chicago, 4 cents to $2.72 in the U.S. Gulf and 5 cents to $2.82 on the West Coast, data compiled by Bloomberg show.