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Ethanol Gains Against Gas on Lower Supply, Higher Demand

February 26, 2013
POET ethanol plant

Feb. 25 (Bloomberg) -- Ethanol gained against gasoline on speculation that lower imports and higher demand will drain stockpiles of the fuel alternative.

The spread narrowed 2.65 cents to 69.01 cents a gallon. Imports were down 83 percent to 21,000 barrels a day in the week ended Feb. 15 from the 2012 high in October, according to the Energy Information Administration, while inventories are lower than year-ago levels.

"Relative to the discount to gasoline, there’s no reason blenders shouldn’t be using as much as they possibly can," said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. "We’re importing less. That’s another reason we should see a drawdown in stocks."

Denatured ethanol for March delivery rose 0.8 cent, or 0.3 percent, to settle at $2.371 a gallon on the Chicago Board of Trade. Futures have advanced 8.3 percent this year.

Gasoline for March delivery decreased 1.85 cents, or 0.6 percent, to $3.0611 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.

Reilly said better returns have given companies an incentive to raise ethanol production.

Production Up

Output rose a third consecutive week in the period ended Feb. 15, the Energy Department’s statistical arm said in a Feb. 21 report. Production is down 17 percent from the record 963,000 barrels a day in December 2011 as companies slashed operations because of higher corn prices caused by the worst drought since the 1930s.

Corn for March delivery advanced 3.25 cents, or 0.5 percent, to $6.935 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 15 cents, unchanged from Feb. 22. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Joseph Glauber, the Agriculture Department’s chief economist, said Feb. 21 that corn to be used for ethanol in the 2013-2014 growing season will be below 5 billion bushels for a second year.

RINs Reserves

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RELATED TOPICS: Biofuels, Economy, Ethanol

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