Biodiesel producers should capitalize on rising petrol prices

By Nicholas Zeman | June 09, 2009
World Energy Alternatives reported that rack prices for biodiesel were up 5 cents per gallon for the week of May 11. Atlas Renewable Energy of Chicago reported that the spot price for biodiesel on May 27 was between $2.84 per gallon and $2.94 per gallon. "Biodiesel hasn't been moving much in the past several weeks," said Will Babler of Atlas. According to Biofuels Brokers of Hickory Corners, Mich., biodiesel prices always take off in spring and summer and slow in the winter. "Biodiesel is a seasonal market," said Michael Cooper, president of Biofuels Brokers.

Diesel prices are rising too. Despite the highest inventories of crude oil since before the Great Depression-at around 375 million barrels-prices are rising, to the puzzlement of the U.S. Energy Information Administration. "Prices are at $50 per barrel or $60 per barrel when they should be at around $35 per barrel, according to the fundamentals of supply and demand," said a Biodiesel Magazine source at EIA.

Diesel market trends are following crude oil's suit. "The trucking industry, which buys more diesel than any other sector, has lost 30 percent of its business in a single year, and other major areas of diesel demand are performing poorly as well," the EIA source said. "We're done with the home heating oil season, rail freight's biggest customer is the auto manufacturers so their volume is down, next is construction…none of the people I know in construction are working…so all of the major customers of diesel are not buying nearly as much fuel-yet the price is going up."

The crude spot price from May 5 to May 12 jumped from $53.81 to $58.81, at Cushing, Okla., which is a major pipeline distribution spot. OPEC has cut back on the amount of oil that it is supplying to the market and they have curtailed production, said Phil Weiss, analyst for Argus Research Group in New York City. "If they didn't cut production, inventories would be growing even more."

A production cut obviously has an effect on prices even if surpluses remain high. There are other market conditions, however, that are also firming up price performance. "One reason for the rising price of crude and diesel is that the market is making bets on how quickly the economic recovery will take place," Weiss said. 'We've seen some early positive signs."

According to EIA's weekly regional price report, the national average price of diesel fuel rose, gaining 3 cents to $2.22 per gallon for the first time in four weeks. The price, however, was $2.12 below last year's, and $2.55 less than the all-time high price recorded on July 14, 2008. Prices in all regions of the country increased with the East Coast moving 3 cents higher to $2.26 per gallon. The Midwest price also went up 3 cents, to $2.16 per gallon.

Cooper said biodiesel producers and marketers need to take advantage of rising diesel prices, but instead of clinging to them, offer the renewable fuel at a lower cost. "The market
is shooting itself in the foot on the demand side," Cooper said. "Biodiesel producers want the value of the product plus the value of the RINs when we need to be selling for less than or equal to the price of petrol diesel to grow our market."
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