Ethanol’s Discount to Gasoline Narrows on End-of-Year Demand

Dec 23, 2013 5:03 pm ET

Dec. 23 (Bloomberg) -- Ethanol’s discount to gasoline narrowed on speculation that holiday travel will boost demand for the grain-based additive.

The spread, or price difference, shrank by 0.78 cents to 86.33 cents a gallon. Inventories are down 25 percent from a year earlier for the second week of December, and have been below-average for most of the year, according to data compiled by Bloomberg.

“Ethanol was firmer across all Chicago markets as demand for cleaning up ahead of the holiday was seen,” SCB & Associates, a Chicago-based brokerage, said in a note to clients.

Denatured ethanol for January delivery rose 0.5 cent, or 0.3 percent, to $1.917 a gallon on the Chicago Board of Trade. Prices have dropped 12 percent this year.

Gasoline for January delivery fell 0.28 cent to $2.7803 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 mostly made from corn, the worst performing commodity this year on the Standard & Poor’s GSCI index. Price declines for the grain after a record crop have helped ethanol distillers boost output.

Corn for March delivery gained 1 cent to $4.3425 a bushel in Chicago. One bushel makes at least 2.75 gallons of the renewable fuel.

The corn crush spread, or the price difference between corn and ethanol, was 15 cents, up from 13 cents on Dec. 20, data compiled by Bloomberg show.

Ethanol inventories were at 15.6 million barrels in the week ended Dec. 13, according to the Energy Information Administration, the Energy Department’s statistical arm. Production fell 1.7 percent to 928,000 barrels a day.

In cash market trading, ethanol in New York was unchanged at $2.285 a gallon, according to data compiled by Bloomberg show. Prices gained 3 cents to $2.525 on the West Coast, 2.5 cents to $2.22 in Chicago and 1.5 cents to $2.32 a gallon on the Gulf Coast.

Chicago’s discount to New York narrowed 2.5 cents to 6.5 cents, while the West Coast’s premium to the Gulf widened 1.5 cents to 20.5 cents.

--Editors: Charlotte Porter, Dan Stets