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  • bluecheese4u bluecheese4u Sep 3, 2013 7:50 PM Flag

    Ethanol’s Discount to Gasoline Narrows on Lower Production Rates

    Ethanol’s Discount to Gasoline Narrows on Lower Production Rates

    By Mario Parker - Sep 3, 2013 10:35 AM MT

    Ethanol’s discount to gasoline narrowed on speculation production of the biofuel will drop lower than levels already seasonally below-average before this year’s corn harvest.

    The spread, or price difference, tightened 0.92 cents to 89.99 cents a gallon at 11:54 a.m. New York time as yesterday’s U.S. Labor Day holiday marked the end of the nation’s summer driving season. Ethanol is blended with gasoline to stretch supply and meet federal mandates.

    “Ethanol production will probably drift a little lower,” said Mike Blackford, a consultant at INTL FCStone Group in Des Moines, Iowa.

    Denatured ethanol for October delivery fell 1.3 cents, or 0.7 percent, to $1.968 a gallon on the Chicago Board of Trade. The September contract, which expires Sept. 5, rose 10.5 cents to $2.498.

    Gasoline for October delivery decreased 2.22 cents, or 0.8 percent, to $2.8679 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, made to be blended with ethanol before delivery to filling stations.

    The October ethanol contract was trading at a 17.3-cent premium to November delivery, a phenomenon known as backwardation, where prompt prices are higher than later ones.

    “The backwardation is very steep and that means user groups won’t buy until they absolutely have to,” Blackford said.

    Fuel Stockpiles

    Ethanol inventories dropped to 16.3 million barrels in the week ended Aug. 23, according to data from the Energy Information Administration.

    Production fell 2.8 percent to 820,000 barrels a day last week, the least since March 29, the EIA, Energy Department’s statistical arm, said Aug. 28. That’s near record-low levels for this time of year, according to data compiled by Bloomberg.

    A 2007 energy law requires refiners to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014. Compliance is tracked by Renewable Identi

 
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