Ethanol gained for a second day on speculation that increased demand for gasoline will spur consumption of the biofuel.
The additive’s discount to the motor fuel contracted 4.83 cents to 80.35 cents a gallon, higher than the 57.15 cents averaged so far this year. Gasoline demand over the past four weeks was 4.7 percent above a year ago as of Nov. 8, data from the Energy Information Administration show.
"It’s tight," said Julie Ward, an assistant vice president at R.J. O’Brien & Associates, a broker in Des Moines, Iowa. "Demand is still good. With ethanol trading almost a buck under gasoline, refiners should be blending as much as they can."
Denatured ethanol for December delivery rose 3.1 cents, or 1.7 percent, to $1.836 a gallon on the Chicago Board of Trade, the highest settlement since Oct. 25. Prices have fallen 16 percent this year.
Gasoline for December delivery fell 1.73 cents, or 0.7 percent, to $2.6395 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 is produced from corn in the U.S. Prices for the grain have fallen 40 percent this year as farmers planted a record crop to recover from last year’s drought.
Persuading farmers to sell corn at current prices is a challenge for ethanol producers and might hamper efforts to raise output, Ward said.
Corn for December delivery advanced 5.75 cents, or 1.4 percent, to $4.1775 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.
The corn crush spread, or the price difference between the cost of a bushel of corn and the price of ethanol was 32 cents, up from 31 cents yesterday, compared with minus 33 cents on Jan. 3, data compiled by Bloomberg show.
"As long as stocks are still tight and it’s trading at a buck under gasoline, margins are going to be good," Ward said.
Ethanol production rose 2.8 percent to 927,000 barrels a day in the week ended Nov. 8, the most since February 2012, according to data from the EIA, the Energy Department’s analytical arm.
Stockpiles were 15.2 million barrels, down 26 percent from this year’s high in January.
The agency is scheduled to release the latest supply and production estimates at 10:30 a.m. tomorrow in Washington.
Refiners are required to use 13.8 billion gallons of ethanol this year. Compliance is tracked by Renewable Identification Numbers, or RINs.
Corn-based-ethanol RINs rose 1 cent to 18 cents, while advanced RINs, which cover biodiesel and Brazilian sugarcane- based ethanol, were unchanged at 21 cents.
In cash market trading, ethanol was unchanged in Chicago at $2.225 a gallon and in the U.S. Gulf at $2.325, data compiled by Bloomberg show. In New York, the additive lost 2.5 cents to $2.325 and on the West Coast, the biofuel decreased 2 cents to $2.325.
West Coast ethanol was at parity with the Gulf from a premium of 2 cents yesterday, and Chicago’s discount to New York Harbor narrowed 2.5 cents to 10 cents.