Biodiesel blending not attractive thanks to oil crash

by SHAHEERA AZNAM SHAH/ pic credit: www.dialogasia.com

OIL firms could be absorbing an immoderate cost of blending activities for biodiesel amid the plunge in Brent crude and crude palm oil (CPO) prices.

The sharp fall in gas oil (diesel) prices makes CPO-blending biodiesel “not an attractive option”, Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa said.

“Although CPO prices have also fallen, the price spread of CPO to gas oil to date is US$140 (RM590.20) on average, which indicates the government must step in and offer the subsidy of US$140 to make CPO blending into biodiesel as an attractive option.

“In other words, blending is an expensive business, especially if crude oil prices fall further,” he told The Malaysian Reserve (TMR).

Crude oil prices yesterday sank more than 20% after Saudi Arabia slashed its selling price in order to ramp up production and offload its constrained supply.

The world’s biggest oil exporter has started a price war with Russia — the world’s second-largest producer — after the latter resisted the production cuts proposed by the OPEC, which were aimed at stabilising prices due to the economic fallout.

Saudi Arabia is planning to increase crude oil production above 10 million barrels per day in April following the expiry of the current deal between OPEC and Russia, known as OPEC+, at the end of March, Reuters reported.

As at press time, Brent crude futures had fallen about US$9.69 to US$35.47 per barrel, the biggest percentage drop since the beginning of the first Gulf War on Jan 17, 1991.

Malaysian energy stocks lost RM509.93 million in market value yesterday as investors fled the oil and gas market, Bloomberg data showed.

Hibiscus Petroleum Bhd, Dialog Group Bhd, Sapura Energy Bhd and Velesto Energy Bhd were the most active trading counters yesterday as the Bursa Malaysia Energy Index fell 25.4% or 256.97 points to 754.95.

As at press time, members of the index had a total market capitalisation of RM51.1 billion.

Meanwhile, the Bursa Malaysia Plantation Index fell 6.52% or 438.92 points to 6,294.12 yesterday, the biggest fall since the 10.3% drop on Oct 24, 2008.

Sathia said low CPO benchmark is expected to drag palm futures in the first half of 2020 (1H20), as lower exports and continued restriction of refined palm oil products by India weigh on the commodity.

“CPO futures price is 30% lower from January. The benchmark contract plunged RM245 yesterday after being hit by the twin impacts of an oil price crash and Covid-19.

“Benchmark CPO futures have more room to fall even after erasing RM245 in value given the weak fundamentals in the palm market such as the lower exports anticipated, higher production outlook and uncertain biodiesel demand prospect,” he said.