Portland Pricing’s commercial bulk diesel index showed a marginal decline of c.1ppl throughout May, trading around 106ppl at the beginning of the month and falling below 105ppl by the end.
This minimal change is a result of a mixed and uncertain outlook. China’s economic recovery became doubtful following further data highlighting the country’s declining manufacturing sector, leading to concerns about global energy demand, exacerbated by recessionary pressures around the world and high interest rates set by central banks.
However, the prospect of further OPEC+ output cuts counteracted weakened demand, preventing prices from freefalling.
Sterling reached its strongest level in 12 months in May, trading above $1.26 against the US dollar, as the rate of food price rises fell for a second consecutive month and the International Monetary Fund stated that Britain is no longer expected to face a recession.
Although inflation in the UK dropped to its lowest level in a year at 8.7%, the decline still underperformed against market expectations of 8.2%, and remained well above the Bank of England’s 2% target.
In an attempt to combat inflation, the central bank increased its rate by 25bps to 4.5%, and revised forecasts to show a stronger British economy. However, persistent interest rate hikes from central banks across the world has led to concerns that the global economy could slow and weaken energy demand, alongside reignited fears over the economic recovery of top oil importer China.
After declining in April, the cost of biofuels fell again in May, contributing to the marginal drop in the price of commercial bulk diesel. Compliance with the Renewable Transport Fuels Obligation (RTFO), a legislative policy that enforces reduction of carbon emissions in the UK transport sector, is traditionally achieved by blending fossil product with renewable bioproduct.
This process of blending biodiesel typically uses methyl ester bioproduct, such as fatty acid methyl ester or rapeseed methyl ester. The cost to blend biodiesel to the UK standard specification of 7% biodiesel (B7 specification) declined by over 1ppl in May, continuing a trend of declining biofuels prices throughout 2023. That cost has dropped from a high of 8ppl earlier this year to just above 2ppl at the time of writing.
The price of Renewable Transport Fuel Certificates (RTFC) rose by a marginal c.1p during May. A higher RTFC value increases the benefit that HVO producers and importers (and therefore HVO consumers) receive.
The price of HVO decreased significantly mid-month, leading to a narrow differential of c.26ppl against traditional diesel. However, by month-end the price of HVO had rebounded, causing the differential to remain virtually unchanged across May at c.33ppl.
Portland Pricing is a specialist provider of transparent, independent fuel price information, covering both traditional and alternative fuels. For more information visit its website.
