[RE]fuel Report Market Commentary

The arrival of 2018 heaped fresh pressure on Year 10 and Year 11 certificates as a perfect storm of legislative inertia, rising mineral energy prices and cold weather continued to harry prices.

Market sources reported offers for Year 10 certificates moving lower with the range extending from 20.3p earlier in the week to stand at 19.6p/certificate by the week’s end. Year 11 activity was said to be limited, with few indications and fewer trades heard, and offers quoted at the 20.5p/certificate level.

The fall in values comes as market sources reported fresh jitters over the lack of progress at the legislative level, as the government’s timeline to getting the RTFO changes on the books by April looked increasingly tight.

Weather, meanwhile, has also continued to favour blending over buying certificates, but the surge in crude prices and the commensurate increase on diesel prices, which have crossed over the $600/mt level in the Amsterdam-Rotterdam-Antwerp hub, means biodiesel premiums have been squeezed and with them the theoretical cap on certificates has tightened.

Energy Census data shows the differential to ULSD stood at $422/mt on December 15, equating to 28 p/certificate, but with diesel up and the RME differential squeezed, that has pared in to $327/mt as of Friday January 5, equating to 21.3 p/certificate.

Offers have chased down values as a result, with pressure likely to continue for the foreseeable future, as trading sources point at further RME forward prices hint at further pressure ahead.

“The biodiesel market is collapsing versus gasoil… It’s almost cheaper to buy the fuel now,” one trading source said, adding that forward pricing on futures contracts shows “RME coming off another $100; it’s $940/mt now, futures are looking at $850/mt.”

It came on a bad day for UK diesel, with car sales falling for the first time in 6 years and the fall spearheaded by a substantial 17% plunge in new diesel registrations.

Even that masked an even more substantial collapse, with the overall downward trend accentuated by a 31% month-on-month fall in diesel registrations in December – the month immediately following the government’s latest budget.