Ethanol’s Discount to Gasoline Shrinks as Losses Boost Demand

Ethanol’s discount to gasoline narrowed on speculation that four days of losses increased demand for the biofuel while Renewable Identification Numbers fell a second day.

The price difference shrank 3.41 cents to 96.76 cents a gallon a day after it reached $1.0017. That compares with an average of 52.24 cents so far this year. The Energy Information Administration said stockpiles dropped 0.7 percent to 15.5 million barrels last week, the lowest level since June 28.

“Yesterday, it came off really hard,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “It was maybe a little bit overdone. There’s not a ton of physical product out there.”

Denatured ethanol for November delivery jumped 4.5 cents, or 2.8 percent, to $1.672 a gallon on the Chicago Board of Trade. The October contract, which expired today, climbed 9.4 cents, or 5.3 percent, to $1.881.

Gasoline for November delivery advanced 1.09 cents, or 0.4 percent, to $2.6396 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Damask said the ethanol market is in backwardation, when prompt deliveries are more expensive than later ones, and that’s causing end-users to buy just enough of the additive to supply immediate needs.

Corn Harvest

Prices are expected to fall as more corn becomes available during the harvest, which lasts from September to November, Damask said.

Ethanol production increased 5.2 percent to 875,000 barrels a day last week, the highest level since July 12, data from the EIA, the Energy Department’s statistical agency, show.

Corn for December delivery added 0.25 cent to $4.3925 a bushel in Chicago. The December corn crush spread of corn to ethanol was 1 cent, up from minus 3 cents yesterday.

A 2007 energy law requires the U.S. to use 13.8 billion gallons of ethanol this year. The government maintains compliance with Renewable Identification Numbers, or RINs, which are tracking certificates attached to the biofuel. They can be traded among refiners and later submitted to the Environmental Protection Agency.

Conventional ethanol RINs dropped 1 cents to 38 cents, the lowest since Feb. 20, while advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, declined 1 cents to 48 cents, the cheapest since Jan. 29, according to data compiled by Bloomberg.

Next Year

The EPA is scheduled to release its proposal for next year’s requirements this fall. Last week, congressional negotiators met with renewable fuel interests to discuss possible changes to the program. In August, EPA said it would extend the deadline for refiners to show compliance to June 2013 from February.

“Uncertainty” about the EPA’s blending targets has led to lower prices for the certificates, said David Dunn, a certified financial analyst at Progressive Fuels Ltd., in Naples, Florida.

In cash market trading, ethanol in New York tumbled 10 cents to $2.10 a gallon; in Chicago prices gained 2.5 cents to $2; in the U.S. Gulf the additive rose 1.5 cents to $2.07; and on the West Coast the biofuel held at $2.05 a gallon, data compiled by Bloomberg show.

New York Harbor’s premium to Chicago dwindled 12.5 cents to 10 cents, while the West Coast’s discount to the Gulf expanded 1.5 cents to 2 cents.

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