Heat demand, 'speculation' drive oil

By Nicholas Zeman | December 21, 2009
Posted December 30, 2009

Biodiesel risk managers often use the price of heating oil for discovery purposes, because methyl esters have no futures product of their own. Heat drove the price of crude oil up in late December because of cold temperatures throughout much of the U.S. As of Dec. 29, crude had settled at a price between $79 and $80 a barrel.

Prices have been volatile this month and are up nearly $5 on the past week. Besides the cold, there are few tangibles that are driving this upward pressure, said David Swenson, professor of economics at Iowa State University. "I'm not seeing a lot of household confidence," he said. "We have decent supplies and the dollar is rising, so I'm not convinced that these latest moves are following the fundamentals."

When prices are driven up on the energy side of the biofuels sector, it can boost sales margins. "But if that is being supported by speculation, it creeps in and slaps the biofuels industry in the face on the input side," Swenson said. "All energy is linked, and it does have an indirect correlation with grain prices. Absent federal policy, I don't see biofuels as ever having any market power. They're price takers right now-and they've been grateful price takers over the past few months."
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