Ethanol Snaps Streak of Gains Against Gasoline on Higher Output

February 23, 2013 01:55 AM
Ethanol Snaps Streak of Gains Against Gasoline on Higher Output

Feb. 22 (Bloomberg) -- Ethanol snapped the longest streak of gains against gasoline in five weeks as prices for the motor fuel rose for the first time in four days and production of the biofuel increased.

The spread widened 3.01 cents to 71.66 cents a gallon, based on futures settlement prices, the first expansion since Feb. 14. Gasoline prices recovered a day after the Energy Information Administration said supplies sank 2.88 million barrels and ethanol production grew for a third week.

"Production has been up a little bit," said Will Babler, a broker at Atten Babler Risk Management LLC in Galena, Illinois. "Margins have come off the lows. Some plants have increased run rates."

Denatured ethanol for March delivery rose 1.3 cents, or 0.6 percent, to $2.363 a gallon on the Chicago Board of Trade. Futures have advanced 7.9 percent this year.

March-delivery gasoline gained 4.31 cents, or 1.4 percent, to $3.0796 a gallon on the New York Mercantile Exchange.

Output’s third weekly gain is the longest since November, the Energy Department’s analytical arm said in the report yesterday. Production is down 17 percent from the record 963,000 barrels a day in December 2011 as companies navigate poor returns for the fuel because of higher corn prices.

Corn for March delivery fell 0.5 cent to $6.9025 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. Corn futures rose to a record $8.49 a bushel in August as drought in the Midwest cut yields.


Crush Spread


The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 15 cents, compared with minus 16 cents yesterday and minus 35 cents on Dec. 31. 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, U.S. refiners are required to use 13.8 billion gallons of ethanol this year, up from 13.2 billion in 2012.

Lower output has lifted the price for Renewable Identification Numbers, known as RINs, which help the government track whether refiners are meeting federal biofuel mandates, Babler said.

RINs for corn-based ethanol jumped 32 percent to 45 cents yesterday, according to data compiled by Bloomberg, while the worth of the advanced variety, which includes biodiesel and sugarcane-based Brazilian grade, climbed 16 percent to 59.5 cents.


RIN Costs


The advanced RINs’ premium over the conventional sort narrowed to the tightest difference since Jan. 29, according to data compiled by Bloomberg.

"With these lower run-rates, it will be hard to meet the mandate," Babler said.

Ethanol-blended gasoline made up about 90 percent of the total gasoline pool, up from 89 percent last week, the EIA said.

Stockpiles were little changed at 19.5 million barrels, the report showed, while imports almost doubled to 21,000 barrels a day from the previous week.

Spot ethanol in Sao Paulo cost $2.38 a gallon last week, according to data compiled by Bloomberg, 0.8 percent more expensive than today’s futures price.

Babler said ethanol would get a boost if refiners and filling stations implemented higher concentrations of the fuel in gasoline.


EPA Appeal


The American Petroleum Institute, the American Meat Institute and other groups said yesterday that they appealed to the Supreme Court an Environmental Protection Agency decision to allow gasoline to be sold with as much as 15 percent ethanol for vehicles made after 2001.

In cash market trading, ethanol in New York jumped 2 cents to $2.48 a gallon, in Chicago the biofuel rose 1.5 cents to $2.37, in the U.S. Gulf the additive climbed 1.5 cents to $2.42 and prices on the West Coast were unchanged at $2.52 a gallon, data compiled by Bloomberg show.

The West Coast’s premium to the Gulf Coast thinned to 10 cents, the narrowest level since Jan. 22, while ethanol in New York Harbor was 11 cents more expensive than in Chicago, the highest level since Feb. 14.




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