Low oil prices will mar global ethanol usage

Subject

Outlook for the global ethanol industry.

Significance

Before the expansion of US domestic oil production, ethanol was thought to hold potential as a cheaper fuel. The drop in oil prices has resulted in abundant cheap gasoline, making ethanol less competitive in fuel blends. This has consequences for the ethanol industry, whose global output was 97 billion litres in 2015, with the United States (56%) and Brazil (24%) by far the largest producers.

Impacts

• This year should see similar price action to that of 2015.
• Although below-average margins caused a rationing of production in early 2016, a rebound in margins is likely later this year.
• Lower prices will lead to additional forward ethanol exports, since corn plantings in the 2016-17 crop year could increase globally.
• Without a gasoline price rally, the best-case scenario is a low-to-flat price margin environment for ethanol.