Ethanol Gains After Stockpiles Drop Amid Lower Output

Ethanol advanced after stockpiles of the biofuel fell for the first time in five weeks.

February futures rose 2 percent. U.S. inventories declined 0.5 percent to 15.6 million barrels in the week ended Dec. 27, the Energy Information Administration said today. Production retreated 1.4 percent to 913,000 barrels a day, the 10th straight week over 900,000. Cold weather in the Midwest hampered transportation of the fuel.

“Demand is still surprisingly strong,” said Renan Pimenta, an analyst for Intl FCStone Inc. in Campinas, Brazil. “The snow has also been a problem to move the ethanol to consumers.”

Denatured ethanol for February delivery gained 3.6 cents to settle at $1.855 a gallon on the Chicago Board of Trade. The January contract, which expires Jan. 6, added 4 cents to $1.99 a gallon.

Ethanol’s discount to gasoline was 79.38 cents based on February contracts, down from 87.6 cents yesterday.

Gasoline for February delivery declined 4.62 cents, or 1.7 percent, to $2.6488 a gallon at the close on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol production is forecast to average 900,000 barrels a day this year, the EIA said in its Dec. 10 Short-Term Energy Outlook. The average for 2013 was 855,000, EIA data show.

Crush Spread

Corn for March delivery rose 3 cents, or 0.7 percent, to $4.235 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread, or the difference between the cost of corn and the price of ethanol, was 25 cents a gallon based on March contracts, up from 23 cents yesterday.

U.S. ethanol remains competitive after corn prices slumped 40 percent last year, the worst performance among the 24 raw materials in Standard & Poor’s GSCI Spot Index, preventing imports, FCStone’s Pimenta said. The U.S. hasn’t made any imports since the week ended Sept. 27, EIA data show.

In cash market trading, ethanol gained 3.5 cents to $2.18 a gallon in Chicago and 3 cents to $2.28 in the Gulf Coast. The biofuel was unchanged at $2.35 a gallon in New York and declined 1 cent to $2.56 in the West Coast, data compiled by Bloomberg show.

New York’s premium over Chicago narrowed 3.5 cents to 17 cents. The Gulf’s discount to the West Coast tightened 4 cents to 28 cents.

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