U.S. gasoline rises to record premium over ethanol

Mon Mar 26, 2012 6:26pm EDT

* Gasoline-ethanol spread hits record $1.1475 per gallon
    * High fuel prices slow demand
    * Ethanol stocks at record high

    By Michael Hirtzer	
    CHICAGO, March 26 (Reuters) - U.S. gasoline futures soared
to a record premium over ethanol on Monday as gas prices topped
$4 per gallon in some states while stocks of the biofuel were
likely to continue swelling, analysts and traders said.	
    With retail gasoline in Chicago reportedly at a record high,
April gasoline futures rose to $3.4175 per gallon at the
New York Mercantile Exchange, just below the 10-month high set
last week, as ideas of prolonged low interest rates propped up
global oil prices.	
    Surging global energy prices amid sanctions against major
oil producer Iran have underpinned gas prices even as they
crimped fuel demand from drivers, with demand for gasoline in
the United States over the past four weeks down nearly 8 percent
from a year ago, according to the U.S. Energy Administration.	
    	
    	
    	
    The drop in demand for gas has helped push up ethanol stocks
to a record high last week of 22.7 million barrels as the U.S.
government mandates that each gallon of gasoline in the country
can contain only 10 percent ethanol.	
    "Even though we have the incentive to blend, we can't blend
much more -- we're up against the blend wall," said Jerrod Kitt,
analyst at the Linn Group in Chicago. 	
    April ethanol futures on Monday shed 1.7 cents to end
at $2.275 per gallon at the Chicago Board of Trade, with futures
also pressured by falling prices of its main feedstock corn
, which declined 1.35 percent.	
    Gasoline's premium over ethanol hit $1.1475 per gallon
during the session, the biggest premium since each contract was
launched in 2005 and above the previous top $1.0970 per gallon
set in 2008, the same year that saw oil prices hit record highs.	
    Many ethanol plants ramped up production at the end of 2011,
ahead of the expiration of the Volumetric Ethanol Excise Tax
Credit, or VEETC, a tax incentive that provided 45 cents per
gallon to blenders who mixed ethanol with gasoline.	
    Ethanol stocks have remained high since the expiration of
the credit, forcing some plants to reduce production or close.	
    Archer Daniels Midland shuttered a plant in North
Dakota in February while Aventine Renewable Energy Holdings Inc
 earlier this month said it will temporarily shut down
its Mount Vernon, Indiana, plant until margins are more
attractive.	
    "We have seen some plants slow down in our direct area,"
said Chuck Woodside, chief executive officer at KAAPA Ethanol in
Nebraska and chairman of the Renewable Fuels Association. "We're
blending out everything to 10 percent. We need exports to
balance out or gasoline to pick up."    	
    Julie Ward, analyst at R.J. O'Brien, added: "We need to get
into a driving season and we need to get the economy rolling, so
we use more gas. There's not significantly more ethanol that we
can blend, we're at the blend wall. We just need to work through
the stocks."
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.