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EIA shows surprise ethanol output drop, stocks climb on week

US EIA says ethanol output climbs, stocks down modestly on week

Houston — US ethanol production averaged 1.051 million b/d in the week that ended September 14, up 31,000 b/d week on week, Energy Information Administration data showed Wednesday.

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Output in the most recent reporting week rose 18,000 b/d, or 1.74%, from the year-ago week. Production was within market expectations.

Sharply lower production in last week's data was questioned by many market participants as the abundance of product in the market did not suggest plants were reducing output.

Producer Green Plains on Tuesday responded to reports that it was shutting down plants by saying none of its plants are shutdown or are being shut down. Jim Stark, vice president of media relations at Green Plains, said in a Tuesday call with S&P Global Platts that occasional adjustments of output at plants are a normal response to constantly changing market conditions.

Stocks shed a total of 148,000 barrels, focused on a draw in the East Coast. Inventories were 1.608 million barrels above the same week last year. The stock decline was within market expectations.

East Coast inventories saw a 592,000-barrel decrease, leading total stocks lower. Some market participants may have moved barges out of New York Harbor, the largest trading hub on the East Coast, which may have contributed to the lower stocks. Hurricane Florence's effect on storage could also have led to the lower inventories as some product may have been in transit and not counted in the EIA's survey.

The West Coast shed 53,000 barrels for the second-largest decrease. The EIA reported no imports for the second consecutive week. The West Coast is the most common destination for imports as Brazilian sugarcane-based ethanol generates both D5 RINs and Low Carbon Fuel Standard credits under California's LCFS.

Several vessels from Brazil landed in late August and early September, raising inventories in the region. Prices in California have been volatile as market participants have balanced demand with keeping room in storage for the imports. Additional imports from Brazil are expected later in the year as the country has produced high volumes of ethanol from the current sugarcane crop season.

The Midwest fell by 12,000 barrels. The Midwest is host to the largest number of ethanol plants across all US regions. Seasonal maintenance is not expected until late September or early October, though plants have to balance inventories ahead of the production cuts.

High volumes moving into Chicago, the busiest trading hub in the US and located in the Midwest, prompted the Canadian National Railway to embargo rail cars into Kinder Morgan's Argo, Illinois, terminal last week. The embargo, put into effect on September 5, had little effect on the market as the lack of new supply moving into the terminal was outweighed by the product available both in the terminal and in rail cars in nearby yards. CN spokesman Patrick Waldron said September 14 that the company had resumed managed movements of rail cars into the terminal.

The Gulf Coast added 501,000 barrels. The Gulf Coast is the most common origin for ethanol exports from the US and inventories are likely seeing staging for export interest that is building into the fourth quarter.

The four-week rolling average of the refiner and blender net ethanol input fell 3,000 b/d to 935,000 b/d, while the weekly average rose 10,000 b/d to 928,000 b/d.

The four-week rolling average of gasoline demand, represented by product supplied, rose 20,000 b/d to 9.704 million b/d, while the weekly average fell 115,000 b/d to 9.534 million b/d.

The four-week rolling average of the ethanol blending rate, calculated by dividing the refiner and blender ethanol input by gasoline demand, fell to 9.64% from 9.69%.

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

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