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Rising refinery output cuts into gasoline premium to Chicago ethanol

Houston — The Chicago CBOB gasoline market premium to Argo ethanol shrank to its lowest level in more than seven months this week as refinery production has increased.

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Benchmark CBOB on an FOB basis for Chicago pipelines has fallen 26.57 cents since October 15 to an assessment of $1.6418/gal on Thursday, partly with support from refiner selling.

At the same time, Chicago Argo ethanol was assessed $1.2450/gal on Thursday, a decline of 5.275 cents since October 15. The CBOB premium on Thursday stood at 39.68 cents/gal, the lowest since reaching the same level on April 4.

The blendstock has fallen as refinery runs increased during the last four weeks. With refinery maintenance in full swing in early autumn, refinery utilization in the region was at 70.0% in the week ending October 12. That figure increased to 77.3% in the week ending November 2.

CBOB has been pressured as the region's largest refinery, the BP plant at Whiting, Indiana, returned units to full production, a US light ends source said.

CBOB arriving in Chicago along the Explorer Pipeline from Houston also has kept a lid on CBOB value, a second light ends source said.

"CBOB has been overpriced against the Group," the site of the other key Midwest benchmark at Tulsa, Oklahoma, the second source said.

Ethanol prices have sunk in recent months due to similar supply concerns. Production of ethanol has topped 1 million b/d each week since April 20, according to data from the US Energy Information Administration. Inventories have built over that time frame. EIA data from November 2 showed that US ethanol stocks had increased 1.805 million barrels year on year.

The builds came despite seasonal maintenance in the fall and during of the year in which gasoline demand typically falls.

Ethanol prices have fallen sharply in turn. Chicago Argo was assessed at $1.5125/gal, its highest level in 2018, on April 19, and reached $124.05/gal on August 30.

--Wes Swift, wesley.swift@spglobal.com

--Jeffrey Bair, jeffrey.bair@spglobal.com

--Sarah Raslan, sarah.raslan@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com