Crude oil’s slump has been so severe that it is now threatening government-aided biodiesel programs in the world’s top producers of palm oil.
Indonesia might miss its target of raising blending to 20 percent (B20) if crude stays below US$30 per barrel, said Fadhil Hasan, executive director at the country’s palm oil association.
In Malaysia, the slump in crude will impact the implementation of the biodiesel program, Malaysian Plantation Industries and Commodities Minister Douglas Uggah Embas told an industry conference in Kuala Lumpur.
The two nations account for 86 percent of the global palm oil supply.
Crude oil is down about 22 percent this year amid volatility in Chinese markets and speculation that the removal of restrictions that capped Iran’s crude sales will help to prolong a global glut.
The conditions have sent the premium of crude palm oil over low sulfur gasoil futures to almost US$290 per tonne from the five-year average of a US$13 discount.
That has clouded the outlook for palm oil prices, said Thomas Mielke, executive director of Oil World, an industry researcher.
“This is one of the big uncertainties,” Mielke said in interview in Kuala Lumpur yesterday. “To what extent will the widening price premium of biodiesel over fossil fuels reside in lower-than-expected biodiesel consumption?”
Palm oil futures rose 9.7 percent in Kuala Lumpur last year on concern the strongest El Nino in almost two decades.
Futures slid 0.1 percent to 2,467 ringgit per tonne on the Bursa Malaysia Derivatives by 3:24pm local time. Brent crude ended US$0.39 lower at US$28.55 on Monday, the lowest close since December 2003.
“If crude oil prices remain at [US]$30, B20 program cannot be sustained in Indonesia,” Fadhil said in Kuala Lumpur.
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