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Power Hour: Ethanol’s Discount to Gasoline Swells as Oil Surges on Egypt

July 5, 2013

July 3 (Bloomberg) -- Ethanol’s discount to gasoline swelled as the motor fuel surged with crude oil on concern political uprising in Egypt will disrupt supply.

The spread, or price difference, widened 2.62 cents to 49.85 cents a gallon at 11:34 a.m. New York time, after Egypt’s President Mohamed Mursi rejected demands calling for his resignation. Ethanol is blended with gasoline as part of U.S. energy plans to reduce dependence on foreign oil imports.

"The herd mentality is so lopsided," said Peyton Feltus, president of Randolph Risk Management Inc. in Dallas. "All of a sudden, everyone’s bullish. Ethanol is having a tough time keeping up."

Denatured ethanol for August delivery jumped 3.7 cents, or 1.6 percent, to $2.348 a gallon on the Chicago Board of Trade. The July contract, which expires today, climbed 4.3 cents to $2.453. Prices have gained 12 percent this year.

Gasoline for August delivery gained 6.32 cents, or 2.3 percent, to $2.8465 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

West Texas Intermediate crude oil surpassed $100 a barrel for the first time in nine months as Mursi called on the Egyptian military to withdraw its ultimatum, signaling he will stay on in the face of mass protests seeking his ouster. The armed forces pledged on July 1 to impose its own plan if he didn’t end the crisis within 48 hours.

 

‘Not Benefiting’

 

"Ethanol is not benefiting from any of this euphoria," Feltus said.

The fuel is made from corn in the U.S., where farmers have planted 97.4 million acres of corn, the most since 1936, the Agriculture Department said June 28.

Feltus said the expectation of a larger corn crop after fields last year were devastated by the worst U.S. drought since the 1930s will lead to more ethanol production and that it’s keeping a cap on prices.

Corn for July delivery climbed 2.25 cents, or 0.3 percent, to $6.75 a bushel in Chicago. The more actively-traded December corn contract decreased 3 cents to $4.9975 a bushel.

The corn crush spread, or the cost difference between a gallon of ethanol and the corn needed to make it, was break-even today, up from minus 4 cents yesterday and compared with minus 35 cents on Dec. 31, data compiled by Bloomberg show.

An Energy Information Administration report showed today that ethanol output last week fell 2.5 percent to 863,000 barrels a day, the least since May 24.

Stockpiles of the biofuel tumbled 5.2 percent to 15.4 million, the lowest level in records going back three years, the Energy Department’s research arm said today.

 

--Editors: Richard Stubbe, Charlotte Porter

 

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

 

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

 

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