Washington Moves Cause Biodiesel Prices to Jump 10%

Kimberly White/Bloomberg News

Spot biodiesel prices have jumped at least 10% because of moves in Washington since Nov. 30, when the Obama administration increased consumption targets for the fuel. About three weeks later, Congress reinstated a $1-a-gallon tax credit for blending it.

Biodiesel’s gains are in stark contrast to the price declines for crude oil, gasoline, heating oil and even the renewable fuel’s cousin, ethanol. It’s a relief for an industry that saw many producers operate below capacity because it didn’t have the tax credit, and customers didn’t know how much the government would require them to consume.

“It’s doing well,” Jerrod Kitt, an analyst at Linn Group in Chicago, said by phone Dec. 30. “Keep in mind, heating oil has gone in the opposite direction.”

Biodiesel in the Midwest increased 11% in December to $2.80 a gallon, the highest since July 23. During that same period, regular diesel in Chicago plummeted 13% to $1.0292 a gallon. Last week, diesel touched 95.54 cents, the cheapest in records dating to 2006, data compiled by Bloomberg News show.

Futures for crude oil dropped 12% in December, gasoline 8.7% and heating oil 18% on the New York Mercantile Exchange. Ethanol was down 7.3% on the Chicago Board of Trade.

Biodiesel’s advance was tempered by the holidays. It is likely to accelerate as traders return from vacation, said Eric De Bruin, a broker at StarFuels Inc. in Milwaukee.

The Environmental Protection Agency’s Nov. 30 Renewable Fuels Standard announcement said refiners such as Exxon Mobil Corp., Chevron Corp. and Valero Energy Corp. should have used 1.73 billion gallons of biodiesel this year and must consume 1.9 billion in 2016.

“Prices are going up,” De Bruin said by phone. “It’s not the big jump over one day, but it’s very slowly going higher.”