Ethanol’s Gain Narrows Gasoline Premium and Lifts Crush Spread

Ethanol gained the most in more than two years, narrowing its discount to gasoline and pushing the corn crush spread to the highest level this year.

Gasoline’s premium to ethanol tightened 9.26 cents to 57.12 cents a gallon, the smallest since July 11, as prices in New York Harbor jumped to a one-month high on speculation that production won’t expand enough to replenish East Coast supplies. The crush spread to corn rose by 10 cents.

“Ethanol plants are struggling to get corn, and supply in New York Harbor is tight,” said Michael Slider, director of business development at Fauser Energy Resources in Oregon, Illinois. “New York Harbor is pulling everything to the right.”

Denatured ethanol for September delivery rose 13.5 cents, or 5.9 percent, to $2.436 a gallon on the Chicago Board of Trade, the steepest gain since March 31, 2011, and the highest price since July 19. Futures have gained 11 percent this year.

Gasoline for September delivery climbed 4.24 cents, or 1.4 percent, to $3.0072 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 stockpiles in PADD 1, which includes New York, were 6.22 million barrels as of Aug. 16, according to the Energy Information Administration. That’s the lowest for this time of year since the EIA began keeping weekly data in 2010. Total supply was 16.5 million, also a record seasonal low.

“Ethanol was off to the races today with September continuing to lead the charge as the tightness in the nearby is looking more and more dire,” SCB & Associates LLC wrote in a note to clients today.

Production Declining

Production has averaged 836,000 barrels this year, down 5.5 percent from a year earlier, according to data from the EIA, the Energy Department’s statistical unit.

The corn crush spread, or the difference between a gallon of ethanol and the corn needed to make it, rose to 63 cents, the highest level this year based on front-month contracts. One bushel of corn makes 2.75 gallons of ethanol.

Corn for September delivery added 8 cents, or 1.6 percent, to $4.955 a bushel in Chicago. The more actively traded December contract advanced 5.5 cents to $4.70.

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 were unchanged at 72 cents while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, held at 80 cents, data compiled by Bloomberg show.

In cash market trading, ethanol gained 3.5 cents to $2.685 a gallon in New York, 14 cents to $2.56 in Chicago, 13 cents to $2.635 on the Gulf Coast and 3.5 cents to $2.66 on the West Coast, data compiled by Bloomberg show. All the prices were one-month highs.

New York Harbor’s premium to Chicago dwindled 10.5 cents to 12.5 cents, while the Gulf’s discount to the West Coast decreased 9.5 cents to 2.5 cents.

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