Ethanol’s Discount to Gasoline Widens on Increase in Stockpiles

Dec 18, 2013 6:06 pm ET

Dec. 18 (Bloomberg) -- Ethanol’s discount to gasoline reached the widest level in a month after a report showed the biofuel’s inventories gained for a third consecutive week.

The spread, or price difference, widened 4.11 cents to 87.53 cents after the Energy Information Administration said today that inventories rose 1.1 percent to 15.6 million barrels, the most since Sept. 13.

“The numbers really aren’t super-spectacular, but people are seeing a trend,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “This is the time of year that you have to have a jaundiced view of ethanol.”

Denatured ethanol for January delivery added 0.9 cents, or 0.5 percent, to $1.822 a gallon on the Chicago Board of Trade. Prices have dropped 17 percent this year.

Gasoline for January delivery added 5.01 cents, or 1.9 percent, to $2.6973 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 production fell 1.7 percent from the previous week to 928,000 barrels a day, the Energy Department’s statistical arm said. That’s the second-highest total this year. Cheaper feedstock costs have allowed distillers to boost operations.

Ethanol is made mostly from corn in the U.S., with one bushel making at least 2.75 gallons of the fuel.

Corn for March delivery fell 1.75 cents, or 0.4 percent, to $4.25 a bushel in Chicago. The corn crush spread, or the difference between the cost of corn and the price of a gallon of ethanol, was 10 cents, up from 9 cents yesterday.

In cash market trading, ethanol fell 4.5 cents to $2.28 a gallon in New York, 4 cents to $2.095 in Chicago, 4.5 cents to $2.195 on the Gulf Coast and 14.5 cents to $2.355 on the West Coast, data compiled by Bloomberg show.

New York’s premium to Chicago narrowed 0.5 cent to 18.5 cents while the Gulf’s discount to the West Coast tightened 10 cents to 16 cents.

--Editors: Richard Stubbe, Margot Habiby