US fuel ethanol production and inventory changes follow gasoline

As a result of reduced economic activity and stay-at-home orders aimed at slowing the spread of COVID-19, transportation fuel demand has sharply declined since March. Weekly US motor gasoline product supplied fell to its lowest level on record during the week ending 3 April. Fuel ethanol production reached a low point three weeks later.

Sharp reductions in motor gasoline blending demand reduced already weak fuel ethanol operating margins, leading many plants to suspend operations entirely or significantly reduce output. Press reports indicate that nearly 30% of the nation’s fuel ethanol plants have been idled since early March, while another 35% have reduced production.

EIA’s weekly fuel ethanol production data show that US fuel ethanol output averaged 586 000 bpd for the four weeks ending 24 April 2020, 43% less than the average of the four weeks ending 26 April 2019, largely matching the decrease in weekly motor gasoline product supplied over the same period. However, because supply still exceeded demand, fuel ethanol inventories increased to record-high levels in April. Total motor gasoline inventories also hit record highs in April.

Before country-wide mitigation efforts were implemented in response to COVID-19, fuel ethanol inventories were already trending at some of their highest seasonal levels in early 2020 because of relatively flat US gasoline demand and limited domestic fuel ethanol demand growth beyond E10. US fuel ethanol inventories reached an all-time record level of 27.7 million bbl during the week ending 17 April, which was 22% higher than at the same time last year. As gasoline demand has begun to gradually recover, fuel ethanol inventory levels decreased to 22.5 million bbl for the week ending 29 May, similar to their value in late May 2019.

The sharp reductions to demand and all-time record inventories have led to estimated US fuel ethanol producer margins briefly going negative in March. Estimated fuel ethanol margins were negative as recently as 2019 because of rising corn prices and high fuel ethanol inventory levels. Negative fuel ethanol producer margins in March 2020 drove many fuel ethanol production facilities to have to idle or shut down production capacity, driving the record-low production rates in April.

In its latest Short-Term Energy Outlook, EIA forecasts that US fuel ethanol production will average 870 000 bpd in 2020, about 15% lower than the 2019 average. EIA expects fuel ethanol margins to gradually increase, but lower US motor gasoline demand will keep fuel ethanol production levels lower than 2019 levels in 2020. EIA forecasts that U.S. fuel ethanol production will increase in 2021 to reach an average of 970 000 bpd.

Principal contributors: Sean Hill, Estella Shi

Read the article online at: https://www.hydrocarbonengineering.com/clean-fuels/09062020/us-fuel-ethanol-production-and-inventory-changes-follow-gasoline/