Ethanol’s Discount to Gasoline Widens Below-Average Inventory

Source: By Mario Parker, Bloomberg • Posted: Friday, April 5, 2013

Ethanol strengthened against gasoline a day after a U.S. Energy Information Administration reported record low inventory for this time of year.

The spread tightened 2.63 cents to 47.57 cents a gallon as the Energy Department’s analytical arm said stockpiles of the fuel last week rose 0.2 percent to 17.5 million barrels, from the lowest level since the week ended Dec. 9, 2011. Inventories are 22 percent lower than a year ago.

“There’s a lot of demand in the front for prompt product,” said Jim Damask, a manager at StarFuels Inc. in Jupiter, Florida. “They must be ripping right through supply.”

Denatured ethanol for May delivery rose 1.1 cents, or 0.5 percent, to $2.423 a gallon on the Chicago Board of Trade.

Gasoline futures for May delivery dropped 1.53 cents, or 0.5 percent, to $2.8987 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

Ethanol companies have tempered production 7.6 percent to 807,000 barrels a day from a year earlier, before the worst drought since the 1930s sent corn prices to a record high and eroded returns for making the fuel.

Corn prices plunged 14 percent after a March 28 Agriculture Department report showed domestic inventories on March 1 totaled 5.399 billion bushels, exceeding analysts’ estimates of 4.995 billion.

Corn Prices

Corn for May delivery fell 11.5 cents, or 1.8 percent, to $6.30 a bushel in Chicago, the lowest settlement since June.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was 13 cents a gallon, up from 8 cents yesterday. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Under a 2007 energy law, known as the Renewable Fuels Standard, the U.S. is required to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014.

Ethanol-blended gasoline made up 92 percent of the total U.S. gasoline pool, the least since Feb. 22, the EIA said. That’s down from a record 95 percent in the week ended March 15.

Imports of the fuel averaged 49,000 barrels a day last week, the highest level since Jan. 18 and up from 9,000 barrels a year earlier, EIA said.

Spot Trading

In cash market trading, ethanol jumped 8 cents to $2.48 a gallon in Chicago, 7 cents to $2.535 in the Gulf and 4 cents to $2.59 in New York, data compiled by Bloomberg show. Prices slipped 0.5 cent to $2.675 on the West Coast, the most expensive U.S. hub.

West Coast ethanol’s premium to the U.S. Gulf narrowed 35 percent to 14 cents, the least since March 6, while Chicago’s discount to New York Harbor shrank 27 percent to 11 cents.

Biofuel in the U.S. is tracked by Renewable Identification Numbers, or RINs, certificates that refiners use to show compliance with mandates to the Environmental Protection Agency or trade to other parties.

Corn-based ethanol RINs rose 1.4 percent to 71 cents today, data compiled by Bloomberg show. They traded at 7.1 cents on Jan. 7.

Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, added 2 percent to 78 cents. Those certificates traded at 37 cents on Jan. 7.