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Column: U.S. ethanol output closing gap on prior years but remains lackluster

FORT COLLINS, Colo. (Reuters) - U.S. ethanol production last week sank to a 12-week low, but the running deficit versus previous years has been shrinking over the last month, bringing output slightly closer to normal levels.

A gas pump displays the price for E15, a gasoline with 15 percent of ethanol, at a gas station in Nevada, Iowa, United States, May 17, 2015. REUTERS/Jim Young

Implied ethanol consumption is off from recent highs, but its year-on-year deficit has also contracted. U.S. gasoline demand is declining in line with seasonal trends, though there has been no recent improvement in its departure from normal levels.

Fuel demand and ethanol output dropped off sharply earlier in the year when the pandemic began, though they bounced quickly after hitting the April lows. But aside from year-on-year trends, ethanol production and consumption have not made further improvements for two to three months.

It is not uncommon for both ethanol output and gas demand to decline at this time of year. The summer driving season is over, and the corn crop is in the early stages of collection. Gas demand tends to continue the downward trend toward the end of the year, but ethanol production usually picks up as more corn is readily available post-harvest.

The lack of travel and commuting continues to plague the ethanol and fuel industry, which could become even more pronounced into the colder months, but there are already longer-term concerns. The U.S. Grains Council said last week that ethanol output is unlikely to recover to pre-pandemic levels until 2022.

Earlier this month, the U.S. Department of Agriculture reduced its projection of domestic corn usage for ethanol output in 2020-21 by 2% to 5.1 billion bushels, which would be about 7% below the recent average, excluding the latest year.

BY THE NUMBERS

Data from the U.S. Energy Information Administration showed last week’s ethanol output at 906,000 barrels per day, down 2% on the week and the lowest since the week ended June 26. The four-week average of 923,750 bpd is the lightest in nine weeks.

That four-week average is down about 10% on the previous three years, a smaller gap than the 11% and 12% observed two and three weeks earlier, respectively. When compared with the same periods in 2019 and 2018, the latest gap was the smallest since the pandemic began.

The largest post-pandemic four-week output average was 933,250 bpd in the period ended Aug. 14.

Ethanol stocks last week rose 1% to just under 20 million barrels, placing implied consumption at a three-week low when combined with the fall in output. Consumption averaged about 938,000 bpd in the latest four weeks, about 10% below normal levels.

That departure is better than a month ago but larger than the late June to early August levels. Average implied ethanol usage has trended downward for about three months.

U.S. gasoline demand, measured by finished motor gasoline supplied to the market, has declined over the last couple of weeks. The magnitude is comparable to the seasonal slide observed in the previous few years.

However, the deficit versus previous years has not improved since the end of August, when gas demand was averaging about 8% below average, a post-virus best. In the latest four weeks, gas demand averaged 8.54 million bpd, around 9.5% below normal levels.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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