Biofuel and Oil Seek Federal Help to Deal with Sharp Decline In Production and Prices

June 18, 2020

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(RFD TV) ... Both the oil and ethanol sectors are asking the federal government to step in as each one sees a sharp decline in prices and production. Oil groups say that the pandemic pushed the industry over the edge, while it was battling an already downward demand trend.

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"U.S. producers had responded significantly to market signals by lowering production by two million barrels per day... While the supply response was helpful, it pales in comparison to the historic drop in demand," Macchiarola (Frank Macchiarola with American Petroleum Institute) says.

The strain led to another oil sector request for ethanol waivers, a continued fight for the biofuels industry. The EPA has yet to decided on retroactive refinery waiver request. Iowa Senator Chuck Grassley says that the petitions are an attempt to work around a 10th Circuit Court decision. That would put an end to the large number of blending waivers granted by the administration.

"If the EPA ends up accepting these petitions, not only will they lose again in court, they will also risk President Trump's support in Iowa and other Midwestern states. This pattern of RFS abuse must end. Administrator Wheeler should publicly dismiss these ridiculous petitions as soon as possible," according to Sen. Grassley. READ MORE

Biofuel's Road To Recovery (RFD TV; includes VIDEO)

Pandemic puts the hurt on ethanol industry: Sen. Klobuchar hears concerns from area ethanol producers (Marshall Independent)

The Andersons battles headwinds, anticipates rebound (The Blade)

With losses mounting, Iowa farmers, ag groups hope congressional leaders provide additional coronavirus aid (Des Moines Register)

The Ethanol Sector's Recovery Gains Steam, But Coronavirus Headwinds Persist (Seeking Alpha)

Interactive infographic: Fossil fuels' shrinking share of global energy mix after 2020 shock (S&P Global Platts)

Petroleum Refiners Pose Hurdle to Oil’s Recovery -- Many refiners are struggling to make ends meet, crimping a key source of demand for crude oil (Wall Street Journal; includes VIDEO)

Culture of Inflating Oil Reserves Helped Stoke U.S. Shale Boom (Bloomberg)

Shell Takes $22 Billion Write-Down, Expecting Lower Oil and Gas Prices (Wall Street Journal)

Oil and gas cash for Trump in 2020 trails previous GOP candidates (S&P Global Platts)

END OF ETHANOL PRODUCTION STREAK SIGNALS START OF ANOTHER NEW NORMAL (Brownfield Ag News)

U.S. refiners' biofuel bills soar in oil market slump (Reuters)

Excerpt from Seeking Alpha: Two factors have had an outsized impact on the ethanol sector's improvement. The first has been the partial recovery of U.S. gasoline demand. While the fuel's consumption remains approximately 20% lower than is normally seen in June (see figure), it has increased by 50% from April's lows. Ethanol demand is closely tied to gasoline demand since almost all of the former is blended with the latter prior to retail, and the collapse of gasoline demand that occurred earlier this year was the primary cause of the ethanol sector's poor production margins. Improved gasoline demand has therefore translated to higher ethanol demand.

Source: EIA (2020).

That said, ethanol demand has recently rebounded by more than would be expected just based on the recent gasoline demand trend. Weekly ethanol blending volumes by the refining and wholesale/retail segments are only 15% lower than the normal volume for this time of year (see figure), having increased by almost 60% from April's lows. As I wrote earlier this month, Renewable Identification Number [RIN] prices have surged since early April, increasing the incentive to blend ethanol under the revised Renewable Fuel Standard [RFS2] biofuels blending mandate. It is possible that the superior recovery of ethanol demand is attributable to this development.

Source: EIA (2020).

More directly, ethanol production margins have benefited from the continued strength of ethanol's price premium relative to the price of gasoline (see figure). While this has declined from the extreme ratio that was reached in March and April as rapid demand disruption occurred, it remains well above the long-term average. A strong ethanol price premium often reflects a dynamic in which ethanol demand is stronger than gasoline demand, as appears to be the situation now. READ MORE

Excerpt from S&P Global Platts: President Donald Trump's campaign is trailing previous Republican presidential campaigns in the amount of cash raised from oil and gas industry donors, although the campaign is well ahead of the tepid amount of cash the oil and gas industry gave Trump in 2016, according to federal elections data.

Individual donors and political action committees donated just over $2 million to Trump's campaign, according to Federal Election Commission data through July 16 as organized by the Center for Responsive Politics. That's more than twice the amount Trump saw from the oil and gas industry for the full 2016 campaign and almost seven times more than opponent Joe Biden has seen for the 2020 race.

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Trump's administration has not done much for oil and gas company stocks, oil analyst Paul Sankey with Sankey Research LLC said. "Trump has been huge for refiners on tax cuts and small refiner exemptions from [Renewable Identification Numbers, or RINs]. Not a lot could be done about the oil price. But it is ironic that the oil sector basically did well under Obama and got absolutely destroyed under Trump, in the market."

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Whatever the dollar amounts, Trump is confident of his support from the oil and gas industry. "I saved the oil industry. Two months ago, I saved the oil industry ... we saved it so Texas is not going to have to let go of millions and millions of people," Trump said after a July 13 panel at the White House.

Book pointed out the 2020 election choice is becoming increasingly binary as Democrats pursue a green agenda. "In an ordinary campaign, you tack to the center, but this is a 'bring out your base' election," Book said. "I don't think you're going to see a lot of heavy industry in general, never mind oil and gas, saying, 'Boy, this [Biden] is what we've been looking for.'" READ MORE