Ethanol Drops For Fifth Day As U.S. Gasoline Demand Slips

Source: By Barbara Powell, Bloomberg • Posted: Thursday, July 26, 2012

Ethanol futures fell for a fifth day on speculation that weaker gasoline demand will slow consumption of the biofuel.

Futures fell as gasoline demand over the four weeks ended July 20 was 3.1 percent below a year earlier, according to Energy Department data released today. Demand, which was 8.66 million barrels a day last week, has been below 9 million in 27 of 29 weeks this year.

“Weak gasoline demand is sort of a double whammy,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts. “It undercuts the price of gasoline and reduces available volume for blending.”

Denatured ethanol for August delivery fell 2.2 cents, or 0.9 percent, to $2.574 a gallon on the Chicago Board of Trade, the lowest settlement since July 13. Prices have gained 17 percent this year.

“Ethanol had room to fall back because demand doesn’t look that strong for ethanol,” Cohan said. “What’s keeping ethanol high is the corn, what’s pulling it off is the gasoline demand.”

Production of the biofuel fell for a sixth straight week, dropping 0.8 percent to 796,000 barrels a day, the least since the agency began tracking weekly data in 2010. Inventories dropped 2.8 percent to 19 million barrels, according to department data.

Corn Gains

Corn for December delivery advanced 9.75 cents, or 1.3 percent, to $7.88 a bushel in Chicago as the grain-rich Midwest is mired in a drought. One bushel makes at least 2.75 gallons of ethanol.

Distillers are losing 34 cents on each gallon of ethanol made based on the September contracts for the fuel and corn, according to data compiled by Bloomberg. Companies including Valero Energy Corp. (VLO), Nedak Ethanol LLC, Green Plains Renewable Energy Inc. (GPRE) and Pacific Ethanol Inc. (PEIX) have shut down or stopped production.

In cash market trading, ethanol rose 7.5 cents to $2.695 a gallon in New York, 4 cents to $2.565 in Chicago, 4.5 cents to $2.62 on the Gulf Coast and 7.5 cents to $2.80 on the West Coast.