Ethanol’s Discount to Gasoline Tightens on Below-Average Supply

Ethanol’s discount to gasoline narrowed after government data showed stockpiles at record-low seasonal levels. Renewable Identification Numbers plummeted.

The spread, or price difference, shrank by 3.3 cents to 68.61 cents a gallon following the Energy Information Administration report that inventories last week rose 1.6 percent to 16.7 million barrels. RINs slumped to the lowest level since April a day after regulators signaled that next year’s biofuel consumption targets may be tempered.

“Inventories probably won’t move a whole lot,” said Mike Blackford, a consultant at Intl FCStone in Des Moines, Iowa. “We’ll probably stay relatively low.”

Denatured ethanol for September delivery fell 1.1 cents, or 0.5 percent, to $2.185 a gallon on the Chicago Board of Trade. Futures are little changed this year.

Gasoline for September delivery decreased 4.4 cents, or 1.5 percent, to $2.8711 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

The U.S. uses RINs to track refiner compliance with the mandate to consume 13.8 billion gallons of ethanol this year. That is slated to increase to 14.4 billion in 2014 unless the Environmental Protection Agency cuts the targets.

The agency yesterday extended by four months the deadline to show 2013 compliance and said it expects to adjust volume requirements for next year.

RINs Prices

Corn-based ethanol RINs fell 15 cents to 74 cents, the lowest level since May 6, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, slipped 14 cents to 83 cents, the cheapest since May 3.

“All the action is taking place on RINS,” Blackford said. “There’s so much uncertainty.”

Ethanol production rose 2.5 percent in the week ended Aug. 2 to 853,000 barrels a day, the EIA, the Energy Department’s research arm, said today. Imports jumped to 56,000 barrels a day from 13,000 the previous week.

Ethanol-blended gasoline made up 90 percent of the total U.S. gasoline pool, down from about 91 percent the previous week, according to the agency.

The fuel is made mostly from corn in the U.S. One bushel makes at least 2.75 gallons of the additive.

Corn for September delivery fell 4 cents, or 0.9 percent, to $4.6825 a bushel in Chicago. The more-actively traded December contract declined 1 cent to $4.5825.

Crush Spread

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 48 cents, unchanged from yesterday, data compiled by Bloomberg show.

In cash market trading, ethanol fell 9.5 cents to $2.465 a gallon in New York, 6 cents to $2.38 on the West Coast, 5.5 cents to $2.35 on the Gulf Coast and 5 cents to $2.27 a gallon in Chicago, data compiled by Bloomberg show.

New York Harbor’s premium to Chicago slid 4.5 cents to 19.5 cents while the U.S. Gulf’s discount to the West Coast shrank by 0.5 cents to 3 cents, the narrowest since July 18.

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