Ethanol’s Discount to Gasoline Expands as Imports Boost Supply

Posted: Friday, November 16, 2012

The additive’s discount to the motor fuel widened to 36.12 cents a gallon from 33.6 cents yesterday, based on December futures prices, after an Energy Department report showed imports in the week ended Nov. 9 were almost triple levels a year earlier. Gasoline’s premium was 99.8 cents on Sept. 28.

Ethanol stockpiles, at 17.9 million barrels, were 4.3 percent higher than a year earlier while production was down 10 percent, the report showed.

“You’ve got plenty of supply,” said Jerrod Kitt, analyst at Linn Group in Chicago. “It’s just the fact that you have Brazil in the market. If you get Brazil out of here, you’ll get inventories down pretty quickly.”

Denatured ethanol for December delivery fell 0.8 cent, or 0.3 percent, to settle at $2.335 a gallon on the Chicago Board of Trade. The futures have risen 6 percent this year.

Gasoline for December delivery rose 1.72 cents or 0.6 percent, to settle at $2.6962 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Ethanol-blended gasoline made up about 90 percent of the total U.S. gasoline pool, down from 92 percent in the week ended Nov. 2 and the lowest level in four weeks.

In cash market trading ethanol on the West Coast was unchanged at $2.485 a gallon and in the U.S. Gulf the additive gained 0.5 cent to $2.425, data compiled by Bloomberg shows.

Spot Markets

Ethanol in Chicago decreased 0.5 cent to $2.35 a gallon and in New York the biofuel lost 1 cent to $2.45.

The U.S. became a net importer of ethanol in August for the first time since November 2010, according to the Energy Department.

Brazil exported 56,000 barrels of ethanol a day to the U.S. in August, Energy Department data show, the highest level in six years.

Anhydrous ethanol in Sao Paulo, where the fuel is made from sugar cane, fetched $2.19 a gallon in the week ended Nov. 9, data compiled by Bloomberg shows. The fuel is made primarily from corn in the U.S.

Corn for March delivery slipped 4.25 cents, or 0.6 percent, to $7.25 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

Based on December contracts for corn and ethanol, producers are losing 29 cents on each gallon of the fuel made, down from 30 cents yesterday, excluding the revenue that can be made from the sale of dried distillers’ grains, a byproduct of ethanol production that can be fed to livestock, data compiled by Bloomberg show.