Ethanol Gains Against Gasoline as Inventories Decline

Ethanol advanced, narrowing its discount to gasoline, after a government report showed inventories near the lowest level this year.

The spread tightened 5.63 cents to 77.49 cents a gallon after the Energy Information Administration said ethanol inventories fell 3.5 percent to 15.6 million barrels last week, the smallest since June 28, when they were at a record low.

“Stocks are down near the lows of this year and production’s down,” said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. “We’re working through a tight market.”

Denatured ethanol for October delivery added 7 cents, or 3.8 percent, to $1.898 a gallon on the Chicago Board of Trade. Futures have declined 13 percent this year.

Gasoline for October delivery gained 1.37 cents, or 0.5 percent, to $2.6729 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 fell 0.7 percent to 832,000 barrels a day last week, a three-week low, data from the Energy Department’s statistical arm show.

Imports jumped to 48,000 barrels a day from 3,000 the previous week. That’s the most since Aug. 2.

Babler said most ethanol plants are relying on corn from last year’s harvest until the new supplies arrive. One bushel of the grain makes at least 2.75 gallons of the biofuel.

Corn Gains

Corn for December delivery rose 6 cents, or 1.3 percent, to $4.5475 a bushel in Chicago. The December crush spread of corn to ethanol was minus 2 cents, versus minus 3 cents yesterday. All crush spreads through July 2016 were negative.

In cash market trading, ethanol in Chicago jumped 9.5 cents to $2.47 a gallon; in New York prices increased 7.5 cents to $2.275; in the U.S. Gulf it held at $2.325; and on the West Coast the biofuel slipped 1.5 cents to $2.26, data compiled by Bloomberg show.

Chicago’s premium to New York grew 2 cents to 19.5 cents while the West Coast’s discount to the Gulf deepened 1.5 cents to 6.5 cents.

Ethanol blender inputs, a measure of demand, last week jumped 1.2 percent to the highest in three weeks, today’s EIA report showed.

Refiner compliance with federal mandates to use the biofuel are tracked by Renewable Identification Numbers, or RINs, attached to each batch of ethanol. The certificates can be kept by refiners or traded.

Corn-based-ethanol RINS rose 1 cent to 51 cents. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, increased 1 cent to 59 cents.

Prices for the credits have surged this year. Senator Charles Grassley, a Republican from Iowa, the largest U.S. ethanol producer, sent a letter to the Environmental Protection Agency today asking for more transparency in RINs trading.

Before it's here, it's on the Bloomberg Terminal.