A sustained rally in heating oil prices lifted US biodiesel assessments Tuesday to their highest level in more than a year.
The US Gulf Coast and Midwest SME biodiesel assessments rose 6.9 cents to $3.3585/gal and $3.5585/gal, respectively. The assessments marked the high levels since December 13, 2016, when Gulf Coast SME reached $3.5545/gal and Midwest SME reached $3.7745/gal.
The Tuesday uptick was the sixth straight increase for the two assessments. Strengthening heating oil futures have powered the rally, which has seen Gulf Coast and Midwest products rise 13.5 cents and 19.5 cents, respectively, since December 15. In that span, NYMEX ultra-low sulfur diesel futures have gained 13.5 cents, from $1.9035/gal to $2.0385/gal.
Tuesday's big spike in prices came after an explosion at an oil pipeline in Libya that was expected to push crude production down substantially.
The falling ULSD prices have also helped improve biodiesel blending economics. The boho factor, or the relationship between the price of soybean oil and heating oil, has fallen to 40.83 cents/gal on Tuesday, the lowest level since September 22, 2015.
However, despite the improvement in blending economics, biodiesel production costs still outpace diesel fuel costs. That has spurred blenders to stop discretionary blending of biodiesel and seek to purchase Renewable Identification Numbers -- essentially biofuel credits -- to comply with federal renewable fuel blending mandates. Prompt trading has also been hindered by the expiration of the $1/gal biodiesel tax credit, which Congress is expected to reinstate in January.
