Ethanol Credits for 2014 Rise to 3-Month High on Biofuel

Source: By Mario Parker, Bloomberg • Posted: Wednesday, November 19, 2014

Certificates that track how much ethanol is used in U.S. gasoline jumped to the highest since August as rail congestion and export demand helped lift prices for the biofuel.

Corn-based ethanol Renewable Identification Numbers rose 13 percent to 53.5 cents, the highest level since Aug. 7, data compiled by Bloomberg show. Ethanol rose to a premium over gasoline yesterday, compared with an average discount of about 66 cents during the past year.

The surge in the credits comes as congestion along the nation’s railroads, used to transport ethanol from producers in the Midwest to the East, West and Gulf coasts, has helped push ethanol prices higher. A year-long delay by the Environmental Protection Agency in releasing final 2014 consumption targets for refiners has added to demand for credits.

Rail congestion, export demand, speculation that cheaper gasoline prices will pull more drivers to the road and boost consumption, as well as a delay by President Barack Obama’s administration in releasing final consumption targets are all working to push RINs higher, said Jerrod Kitt, an analyst at Linn Group in Chicago.

Denatured ethanol for December delivery fell 0.5 cent to $2.062 a gallon on the Chicago Board of Trade. Gasoline for December delivery advanced 1.69 cents, or 0.8 percent, to $2.0432 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Prices for the motor fuel have tumbled 27 percent this year, compared with a 7.9 percent gain for ethanol.

Ethanol Premium

Ethanol traded at a 1.88-cent premium to gasoline today, from 4.07 cents yesterday.

RINs are certificates attached to each gallon of biofuel. Once refiners blend ethanol into petroleum, they can keep the RIN to submit to the EPA to show compliance with the law, or trade it to another party.

Based on ethanol’s premium to gasoline, a refiner may decide to purchase a RIN to satisfy its renewable fuel obligations instead of blending the physical gallon, Kitt said.

Meanwhile, Nov. 15 marked a year since the EPA proposed reducing the amount of ethanol in gasoline from targets laid out in a 2007 energy law, known as the Renewable Fuels Standard.

“Everybody’s pretty surprised” that it’s taken this long, said Tim Cheung, vice president and research analyst at ClearView Energy Partners LLC in Washington.