Ethanol’s Discount to Gasoline Tightens on Lower Stockpiles

Ethanol’s discount to gasoline tightened on record low seasonal supplies of the biofuel.

The spread contracted 3.81 cents to 77.16 cents a gallon. Inventories in the week ended July 26 dropped 4.7 percent to 16.5 million barrels, a three-week low. Ethanol for September delivery is trading at a 13 percent premium to the October contract, a phenomenon known as backwardation.

“The steep backwardation has producers selling any product in tank as the cost of carry is so great,” said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York.

Denatured ethanol for September delivery fell 0.6 cent, or 0.3 percent, to $2.179 a gallon on the Chicago Board of Trade. The August contract, which expires today, slipped 3 cents to $2.26.

Gasoline for September delivery decreased 4.41 cents, or 1.5 percent, to $2.9506 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 is made from corn in the U.S. and one bushel of the grain makes at least 2.75 gallons of the renewable fuel. Stockpiles of the fuel are down 15 percent from a year earlier, data from the Energy Information Administration shows.

Production has slumped three consecutive weeks through July 26 to 832,000 barrels a day, the lowest since April 12, data from the Energy Department’s analytical arm show.

Crush Spread

Corn for September delivery fell 6.75 cents, or 1.4 percent, to $4.6925 a bushel in Chicago. The more-actively traded December contract declined 3.25 cents to $4.605.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts for the grain and biofuel, was 47 cents, up from 45 cents on Aug. 2, data compiled by Bloomberg show.

A 2007 energy law mandates that refiners use 13.8 billion gallons of ethanol in gasoline this year and 14.4 billion in 2014.

Compliance with the law is tracked by Renewable Identification Numbers, or RINs, which are attached to each gallon of biofuel and that can be traded among refiners.

Corn-based ethanol RINs was fell 3 cents to $1.03, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, slipped 2 cents to $1.09.

In cash market trading, ethanol in New York fell 0.5 cent to $2.43 a gallon, data compiled by Bloomberg show. The additive was unchanged at $2.28 in Chicago, $2.375 in the U.S. Gulf and $2.465 on the West Coast.

Ethanol imports tumbled 68 percent to 13,000 barrels a day in the week ended July 26, according to EIA data.

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