Ethanol output hits 11-week high as July 4 demand lifts blending
US ethanol producers ran harder last week, pushing output to an 11-week high as summer driving demand picked up. For jobbers and blenders, that is the number that matters this week. More gallons coming out of the plants means the discount ethanol carries against gasoline in the blend pool stays workable through the holiday, when volume is highest.
E15 at the pump
The other US story is E15, which is legal to sell all summer and running cheaper than E10 at stations that carry it. Retailers in the Midwest are leaning on that gap for holiday traffic. E15 gives a c-store operator a lower posted price on one grade without touching margin much, and July 4 weekend is exactly when a few cents on the sign pulls cars off the interstate.
The demand and the E15 pull work together. Higher blending rates soak up the ethanol the plants are making, which is part of why output could stay firm past the holiday rather than backing off the way it sometimes does once tanks are full.
The crude backdrop
Ethanol economics do not sit in a vacuum. OPEC output rebounded, driven by Gulf producers ramping back up after the US-Iran deal, though the report notes Gulf supply is still well short of normal. More crude on the water tends to soften gasoline, and cheaper gasoline narrows the spread that makes ethanol attractive as a blend component. If crude keeps easing, blenders may see less room in the ethanol discount later this summer.
Retail is still elevated. A Motley Fool roundup of the 10 states paying the most for gas shows prices holding high in the usual high-tax, high-cost markets, so the pump relief from returning OPEC barrels has not shown up evenly.
Asia and feedstock
Asia is turning to biofuels to hedge against Middle East oil supply risk, per OilPrice. That is a foreign story, but it touches US operators through demand. More Asian appetite for ethanol and renewable feedstock could support US export volumes and firm up prices for the corn oil and other inputs that feed the renewable diesel pool. Watch whether that pull tightens feedstock here.
What to watch
Whether ethanol output holds its pace once the holiday tanks are refilled, or eases back the way it usually does in mid-July. Whether the OPEC rebound keeps pressuring gasoline, which would squeeze the ethanol blend spread. And whether Asian biofuel buying starts showing up in US export figures and feedstock costs. Next week's EIA production and stocks numbers will say which way blending margins are leaning.