Ethanol’s Discount to Gasoline Expands on Higher Pace of Imports

Ethanol’s discount to gasoline widened on speculation that a higher pace of imports will counter seasonally below-average production rates.

The spread, or price difference, expanded by 2.21 cents to 66.38 cents a gallon a day after the Energy Information Administration said imports have averaged 22,000 barrels a day this year through the week ended Aug. 16 from 16,000 a year ago. Output fell to a three-week low.

“Good import values over the next few months will help replace some of that production,” said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for September delivery rose 0.5 cent to $2.301 a gallon on the Chicago Board of Trade. Futures have gained 5.1 percent this year.

Gasoline for September delivery climbed 2.71 cents, or 0.9 percent, to $2.9648 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 production averaged 844,000 barrels a day last week, the least since July 26 and 12 percent lower than the record 963,000 in December 2011, data from the Energy Department’s research division show.

The fuel is made mostly from corn in the U.S. Last summer’s drought that wilted crops has tightened supply of the grain until next month’s harvest.

Corn Prices

Corn for September delivery dropped 10.5 cents, or 2.1 percent, to $4.875 a bushel in Chicago. The more actively traded December contract slumped 18.75 cents to $4.645.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, based on September contracts, was 53 cents, up from 49 cents yesterday, data compiled by Bloomberg show.

Ethanol is derived from sugarcane in Brazil. Anhydrous ethanol in Sao Paolo cost $1.98 a gallon in the week ended Aug. 16, the lowest since May 7, 2010, according to data compiled by Bloomberg.

The government uses tracking certificates, known as Renewable Identification Numbers, or RINs, to determine compliance with mandates to use the fuel.

Corn-based ethanol RINs fell 3 cents to 72 cents while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, slipped 2 cents to 80 cents, data compiled by Bloomberg show.

Ethanol-blended gasoline made up 92 percent of the total U.S. gasoline pool last week, down from 94 percent the previous period, EIA data show.

In cash market trading, ethanol rose 7 cents to $2.65 a gallon in New York, 4.5 cents to $2.625 on the West Coast, 4 cents to $2.42 in Chicago and 2.5 cents to $2.505 a gallon on the Gulf Coast, data compiled by Bloomberg show.

West Coast ethanol’s premium to the Gulf expanded 2 cents to 12 cents, the widest since Aug. 13, while Chicago’s discount to New York Harbor gained by 3 cents to 23 cents.

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