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Chicago CBOB maintains commanding premium to Argo ethanol

Houston — The Chicago CBOB gasoline market remained near its highest premium to Argo ethanol in over two years Friday as the gasoline market continued to find support.

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"Well, ethanol is heavily overproduced so prompt Argo has been destroyed," one ethanol source said.

Related Commodities Spotlight podcast: Gasoline, ethanol markets wait for clarifications on Mexico's biofuels blending

Chicago CBOB was at a 43.69 cents/gal premium to the Platts Argo assessment, up from 39.22 cents/gal on Thursday.

Gasoline's premium peaked at 44.56 cents/gal on October 20.

The spread between the two products has been volatile over the past two months. CBOB's premium initially spiked as Hurricane Harvey took Gulf Coast refining capacity offline and left the Midwest to pick up much of the demand.



Gasoline differentials in Chicago also recently rose to their highest levels since Harvey on a sustained gasoline supply shortage in the Midwest. Chicago CBOB rose as high as NYMEX November RBOB plus 16 cents/gal on Monday, matching the multiyear high differential it reached days after Harvey.

Midwest gasoline inventories plunged to 46.586 million barrels for the week ended October 20, the lowest level in two years, Energy Information Administration data showed Wednesday.

Regional stocks have dropped for five consecutive weeks amid multiple refinery turnarounds in the Midwest, as most delayed seasonal work to take advantage of lost production on the Gulf Coast and wide margins after Harvey.

Ethanol prices have tumbled amid high inventories and production.

Demand for the biofuel has waned in recent months as high prices in August dissuaded international buyers from booking imports from the US. Cheap corn prices have kept margins afloat for ethanol producers and encouraged output to remain much higher than last year's levels.

CBOB FOB Chicago pipeline is assessed at a minimum of 87 octane, which reflects octane after rack blending with ethanol. Chicago Argo is assessed at a minimum octane of 115.

Historically, a gasoline premium has not affected refinery or blending operations. As the Renewable Fuel Standard mandates that refiners put a certain percentage of renewable fuels into the transportation fuel pool there's not much wiggle room for more.

Refinery sources have said increased ethanol blending doesn't make much sense as it is giving away market share to a product they are not producing.

The four-week average of the ethanol blending rate -- calculated by dividing the four-week rolling averages of the net ethanol input and gasoline demand -- rose to 10% in the week ended October 20, according to EIA data.

That was up from 9.92% the previous week.

Though there might not be room for much more blending, the lower cost of physical biofuels can help economics somewhat.

--Josh Pedrick, joshua.pedrick@spglobal.com

--Emmanuel Belostrino, emmanuel.belostrino@spglobal.com

--Edited by Jason Lindquist, jason.lindquist@spglobal.com