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The U.S. Energy Information Administration released its weekly Petroleum Inventory Status report today. Despite a 4.5% increase in weekly gasoline demand, ethanol production set yet another record lower week for output, falling a mere 294,000 gallons per day to 23.6 million gallons per day. Weekly ethanol output has dropped 45.6% since movement restrictions to combat the transmission of coronavirus went into place over a month ago.

Amid historically low production, the pace of growing ethanol stocks posted its smallest decline in four weeks. Ethanol stocks swelled by 9.7 million gallons through the week ending April 17 to 1.16 billion gallons. Stocks remain at record high levels as COVID-19 pandemic lockdown measures stifle gas demand. The May ethanol futures contract is currently trading at $0.92/gallon, down 34.1% since New Year’s.

Results from this week’s report were released two days after the May sweet crude oil contract traded in negative territory for the first time in history. As the May contract for West Texas Intermediate (WTI) crude oil approached expiration yesterday, technicalities with futures contract price expiration drove the historic price anomaly. Futures prices tend to converge to cash prices as contracts near expiration.

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The cash delivery site for crude futures contracts is in Cushing, Oklahoma which is short on storage these days amid demand declining consumer demand for fuel. Since delivery at Cushing is physically unlikely due to lack of storage space, prices turned negative to incentivize traders to not deliver oil to Cushing.

The June WTI crude futures prices is currently trading up $2.00 /barrel to $15.78 this morning after offshore wells in the Gulf of Mexico shut off wells accounting for over 15% of U.S. output and rising geopolitical tensions in the Middle East. In the short run, the contract price will likely trade marginally over $0/barrel. But May cargoes have already been booked so storage constraints will be even more severely tested in June when sales have stalled if production continues.

Global storage limits will remain under pressure until demand picks back up and/or international production eases. The world has 6.8 billion barrels of storage capacity. Current storage capacity is projected at 60%. As global oil extraction continues at a faster clip than demand, some storage facilities could run out of storage space by May.

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According to a New York Times article, Angola, Brazil, and Nigeria are days away from hitting storage capacity. South Africa and the Caribbean have already maxed out their inventories. The U.S., Russia, and Saudi Arabia agreed to a 13% reduction in global output on Easter Sunday, but the cuts will not go into effect until May, which could be too little too late for prices.

Nearly 3.5 billion gallons of annual ethanol production are expected come offline in 2020 as fuel demand remains depressed amid COVID-19 movement restrictions. That translates to nearly 1.3 billion bushels of corn. The Energy Information Agency is predicting an 11% decline in ethanol production through year end. USDA lowered it’s April ethanol estimate 328 million bushels of corn – or 885.6 million gallons of ethanol output in 2019/20 – in the most recent World Agricultural Supply and Demand Estimates (WASDE) report.

There is a chance for energy and ethanol demand to recover as the U.S. begins to reintroduce more activity to the economy. And cash prices for corn at ethanol plants have inched up in the past week on strong demand for CO2 from bottling companies and DDGs for cattle feeders. But expect fuel demand – therefore ethanol demand – to remain suppressed until a vaccine is created as global populations minimize movement to prevent virus transmission.