Ethanol’s Discount to Gasoline Widens on Expanding Production

Ethanol’s discount to gasoline widened a fourth day, the longest set of declines against the motor fuel since January, a day after an Energy Department report showed higher output rates.

The spread, or price difference, expanded 6.49 cents to 36.29 cents a gallon. An Energy Information Administration report yesterday showed production last week jumped 2.5 percent to 885,000 barrels a day, the steepest weekly gain since April 5 and the highest level since June 15, 2012.

“It was a pretty good bump up in production,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois.

Denatured ethanol for July delivery fell 3.7 cents, or 1.5 percent, to $2.488 a gallon on the Chicago Board of Trade. Prices have gained 14 percent this year.

Gasoline for July delivery rose 2.79 cents, or 1 percent, to $2.8509 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 89 percent of the total U.S. gasoline pool in the week ended May 31, the least since Feb. 22, the Energy Department’s statistical arm said in the report yesterday.

The biofuel is made mostly from corn in the U.S. Last summer’s drought devastated crops and increased ethanol production costs.

Biofuel Output

Output has rebounded 15 percent from a record low of 770,000 barrels a day in the week ended Jan. 25, EIA data show.

The U.S. Agriculture Department estimated May 10 that the corn harvest will rise to a record 359.17 million metric tons this year, as farmers plant the most acres since 1936.

Corn for July delivery climbed 2.5 cents, or 0.4 percent, to $6.6325 a bushel in Chicago. The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, was 8 cents, down from 12 cents yesterday, data compiled by Bloomberg show.

U.S. refiners are required to use 13.8 billion gallons of ethanol this year. Compliance with the law is tracked by Renewable Identification Numbers, or RINs, certificates attached to each gallon of biofuel. Once ethanol is blended into petroleum companies can maintain the RINs for submission to the government or trade them.

Ethanol RINs

Corn-based ethanol RINs for 2013 were up 1 cent at 95 cents at 5 p.m. New York time. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, climbed 1 cent to $1.06.

The higher ethanol production helped stockpiles to rebound from the lowest level since Oct. 15, 2010.

Inventories last week jumped 2.3 percent to 16.4 million barrels, snapping a five-week string of declines, EIA data show.

In cash market trading, ethanol was unchanged in Chicago at $2.68 a gallon, data compiled by Bloomberg show. In New York, the additive slipped 2.5 cents to $2.715. Along the U.S. Gulf, prices added 1.5 cents to $2.76. On the West Coast, prices jumped 0.5 cent to $2.835 a gallon.

West Coast ethanol’s premium to the Gulf narrowed 1 cent to 7.5 cents while Chicago’s discount to New York Harbor tightened 2.5 cents to 3.5 cents.

The U.S. didn’t make any foreign purchases of the fuel after importing an average of 27,000 barrels a day the previous week, EIA data show.

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