Ethanol’s Discount to Gasoline Narrows on Record Low Stockpiles

Ethanol’s discount to gasoline narrowed for the first time in more than a week after an Energy Information Administration report showed stockpiles of the biofuel at the lowest on record.

The spread, or price difference, contracted 0.5 cent to 37.91 cents a gallon after the Energy Department’s analytical arm said inventories dropped 2.6 percent to 16 million barrels in the week ended June 7, the lowest level in records going back to June 2010. Production declined by 1,000 barrels a day to 884,000.

“Stocks are now at the lowest level since the EIA began reporting the data,” said Terry Reilly, a senior commodity analyst at Futures International LLC in Chicago. “That is friendly to the ethanol market, which limited losses today.”

Denatured ethanol for July delivery fell 0.8 cent, or 0.3 percent, to $2.431 a gallon on the Chicago Board of Trade. Prices have gained 11 percent this year.

Gasoline for July delivery declined 1.3 cents, or 0.5 percent, to $2.8101 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 94 percent of the total U.S. gasoline pool last week, the highest level in two weeks, the EIA report showed. Gasoline demand sank 2 percent to 8.65 million barrels a day, down 5.3 percent from a year earlier.

Ethanol is made primarily from corn in the U.S. One bushel makes at least 2.75 gallons of the renewable fuel. Last year’s drought devastated crops for the fuel and slashed returns for making the additive.

Corn for July delivery slipped 8.75 cents, or 1.3 percent, to $6.5075 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 6 cents, up from 4 cents yesterday.

The U.S. hasn’t made any foreign purchases of ethanol since May 24, the EIA said today.

Each gallon of ethanol is assigned a tracking certificate known as a Renewable Identification Number, or RIN. A refiner can keep the credit to show compliance with federal blending mandates, or trade it.

Corn-based ethanol RINs for 2013 were unchanged at 87 cents, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, were steady at 95 cents.

In cash market trading, ethanol dropped 8 cents to $2.51 a gallon in Chicago, 7.5 cents to $2.61 on the Gulf Coast and 6 cents to $2.63 in New York, data compiled by Bloomberg show. On the West Coast, the biofuel was unchanged at $2.83 a gallon.

West Coast ethanol’s premium to the U.S. Gulf expanded 7.5 cents to 22 cents, the widest since April 18, while Chicago’s discount to New York Harbor grew by 2 cents to 12 cents, the largest differential since May 22.

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