Ethanol Weakens Against Gasoline on Concern Output May Rebound

March 12 (Bloomberg) -- Ethanol weakened against gasoline on concern that improving returns for making the biofuel will spur a rebound in production from record low levels for this time of year.

The spread widened 0.78 cent to 61.62 cents a gallon a day before the Energy Information Administration is to report the most recent weekly production data. Ethanol has risen 5.4 percent this month, boosting returns to the highest level since June and narrowing its discount to gasoline from the 2013 high of 78.76 cents on Feb. 14, data compiled by Bloomberg show.

“It’s tightened significantly,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “I would be surprised if we didn’t see a production increase tomorrow.”

Denatured ethanol for April delivery fell 1 cent, or 0.4 percent, to settle at $2.534 a gallon on the Chicago Board of Trade, dropping from the highest price since Sept. 4. Prices have gained 16 percent this year.

Gasoline futures for April delivery slipped 0.22 cent to $3.1502 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.

Ethanol Output

Ethanol production was down 16 percent to 805,000 barrels a day in the week ended March 1, from a record 963,000 barrels a day December 2011, data from the Energy Department’s analytical arm show.

Plants reduced output and shut operations as manufacturing costs increased with the price of corn after drought reduced yields.

Corn for March delivery advanced 6.5 cents, or 0.9 percent, to $7.41 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol. The May contract jumped by 3 cents to $7.1425 a bushel.

The corn crush spread, representing gains or losses from turning corn into ethanol and based on May contracts, was minus 10 cents a gallon, the highest level since June 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.

The value of Renewable Identification Numbers, the certificates refiners submit to the Environmental Protection Agency to show compliance with the U.S. Renewable Fuels Standard, dropped to 77.5 cents from $1.01 yesterday, Starfuels Inc. said today.

Advanced RINs

They were valued at a record $1.06 on March 8, according to data compiled by Bloomberg, while the worth of advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, fell to 92.5 cents from a record $1.08.

“Apparently, people are trying to sell them,” said Jim Damask, a manager at Starfuels in Jupiter, Florida. “A little bit of selling came in and it created an avalanche.”

Ethanol stockpiles have dropped five consecutive weeks to 19.4 million barrels in the week ended March 1, the lowest level since Nov. 30 and the longest set of declines since October 2010, the most recent EIA report showed.

The U.S. didn’t make any foreign purchases of the fuel for the first time since Feb. 1, according to the data. That compares to the 2012 high of 122,000 barrels a day in October.

Spot ethanol in Sao Paulo cost $2.42 a gallon last week, data compiled by Bloomberg show.

Gasoline Pool

Ethanol-blended gasoline made up 94 percent of the total U.S. gasoline pool, up from 88 percent the previous week and the highest in five months.

In cash market trading, ethanol fell in the major U.S. trading hubs, data compiled by Bloomberg show.

Ethanol in the U.S. Gulf dropped 5.5 cents to $2.615; in Chicago the additive lost 4.75 cents to $2.555; in New York the biofuel decreased 0.5 cent to $2.67; and on the West Coast ethanol lost 0.5 cent to $2.855 a gallon.

West Coast ethanol’s premium to the U.S. Gulf expanded to 24 cents from 19 cents yesterday and Chicago’s discount to New York Harbor widened to 11.5 cents from 7.25 cents.

--Editors: Charlotte Porter, Bill Banker