Ethanol’s Discount to Gasoline Widens on Middle East Concern

Ethanol’s discount to gasoline widened as the motor fuel surged on concern the U.S. may strike Syria and disrupt fuel supplies.

The spread expanded by 3.74 cents to 59.85 cents a gallon as the motor fuel rose 2 percent atop a gain of 2.8 percent yesterday. Both fuels have risen five times in the past six days. An Energy Information Administration report showed ethanol output last week fell 2.8 percent to 820,000 barrels a day, the lowest level since March 29. Supply in the so-called PADD 2 region, which covers the Midwest, dropped to the lowest on record.

“Ethanol’s really been climbing,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “It’s baked in. That may be the disconnect you see.”

Denatured ethanol for September delivery rose 2.3 cents, or 0.9 percent, to $2.496 a gallon on the Chicago Board of Trade. Futures, which have gained 14 percent this year, are headed for the first monthly gain since May and the largest since January.

Gasoline for September delivery increased 6.04 cents, or 2 percent, to $3.0945 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 significant slowdown in production and the large draw in PADD 2 inventories seem to support recent speculation that many ethanol plants are shutting down for summer maintenance,” said Michael Breitenbach, a broker and director of research at Blue Ocean Brokerage LLC in New York.

Stockpiles, Imports

Overall ethanol stockpiles fell 1.4 percent to 16.3 million barrels, the lowest level since July 5, data from the Energy Department’s statistical arm show.

Imports of the biofuel sank 79 percent to 4,000 barrels a day, a third week of declines and the lowest since June 28, when the U.S. made no foreign purchases of the additive.

Ethanol is made from corn in the U.S. One bushel of the grain distills into about 2.75 gallons of the renewable fuel.

Corn for September delivery added 4.5 cents, or 0.9 percent, to $5.0425 a bushel in Chicago. The more actively traded December contract slumped 5.5 cents to $4.8075.

The corn crush spread, or the difference between ethanol and the corn needed to make it, rose to 66.2 cents a gallon, the highest level this year, from 65.6 cents yesterday.

A 2007 energy law requires refiners to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014. Compliance is tracked by Renewable Identification Numbers, certificates attached to each gallon of ethanol that are submitted to the government each year and that also can be traded among companies.

RINs Decline

Corn-based ethanol RINs decreased 2 cents to 68 cents, the cheapest since Aug. 9, data compiled by Bloomberg show. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, fell 3 cents to 75 cents.

Ethanol refinery input, a measure of demand, was little changed, according to the EIA.

In cash market trading, ethanol rose 8 cents to $2.80 a gallon in New York, 6.5 cents to $2.715 in Chicago, 7 cents to $2.81 on the Gulf Coast and 2 cents to $2.85 on the West Coast, data compiled by Bloomberg show.

Chicago’s discount to New York Harbor gained 1.5 cents to 8.5 cents, while the West Coast’s premium to the Gulf slid 5 cents to 4 cents.

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