Ethanol’s Discount Narrows Amid Gasoline Blending Demand

Jan 16, 2014 5:18 pm ET

Jan. 16 (Bloomberg) -- Ethanol’s discount to gasoline narrowed after refiners boosted the amount of ethanol blended into gasoline.

The discount tumbled 5.13 cents to 66.61 cents. Ethanol refinery and blender inputs, a measure of demand, rose 5.4 percent in the week ended Jan. 10 while production of the corn- based biofuel fell to the lowest since October, Energy Information Administration data show.

“The EIA’s blender demand was a big surprise,” Sean Wever, a biofuels broker at Green Key Markets LLC, said in a telephone interview from Chicago. “You would expect the polar vortex would affect both supply and demand.”

Denatured ethanol for February delivery gained 2 cents, or 1.1 percent, to settle at $1.929 a gallon on the Chicago Board of Trade.

Gasoline for February settlement fell 3.13 cents, or 1.2 percent, to $2.5951 a gallon on the New York Mercantile Exchange. The futures cover reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

A winter storm last week prompted companies to halt service and slowed ethanol transportation throughout the Midwest and the Northeast. U.S. rail traffic of chemicals, including ethanol, fell 4.3 percent in the week ending Jan. 11 compared to a year earlier, the Association of American Railroads said today.

Last week’s increase in blender inputs to 797,000 barrels a day came as a surprise as gasoline demand fell in the same period, Wever said.

“The most likely explanation is that a drop in ethanol demand will be filtered in the next EIA report,” he said.

Crush Spread

Corn for March delivery advanced 2.25 cents to $4.28 a bushel in Chicago. The corn crush spread was 29 cents a gallon, up from 27 cents yesterday.

In cash market trading ethanol fell across all major markets. The biofuel retreated 1 cent to $2.38 a gallon in New York, 5.5 cents to $2.10 in Chicago, 5.5 cents to $2.22 a gallon in the Gulf Coast and 0.5 cent to $2.625 a gallon in the West Coast, according to data compiled by Bloomberg.

The West Coast’s premium to the Gulf widened 5 cents to 40.5 cents, while Chicago’s discount to New York Harbor expanded 4.5 cents to 28 cents.

The U.S. tracks compliance with ethanol consumption mandates with Renewable Identification Numbers, certificates attached to each gallon of biofuel that can be traded among refiners.

Corn-based RINs for 2014 were unchanged at 30.5 cents and 2013 RINs were little changed at 30.5 cents, data compiled by Bloomberg show.

--Editors: Richard Stubbe, Bill Banker