Analys

How renewable fuels are accelerating the decarbonisation of transport

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2 år sedan

den

31 januari, 2023

On 16 November 2022, UK’s Royal Air Force (RAF) Voyager aircraft, the military variant of the Airbus A330, took to the skies for 90 minutes over Oxfordshire. What looked like a routine test flight in its outward appearance was ultimately deemed ground-breaking. Why? It was a world-first military transporter aircraft flight, and the first of any aircraft type in the UK to be completed using 100% sustainable jet fuel.

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

What are renewable fuels?

Renewable hydrocarbon biofuels (also called green or drop-in biofuels) are fuels produced from biomass sources through a variety of biological, thermal, and chemical processes. These products are chemically identical to petroleum gasoline, diesel, or jet fuel.

In other words, renewable fuels are sources of energy chemically identical to fossil fuels but produced from domestic, commercial, or agricultural waste (see Figure 1 below).

Figure 1: Converting waste into energy

Why the excitement?

Renewable fuels, like renewable diesel and sustainable jet fuel, can reduce greenhouse gas emissions by around 80-90% compared to fossil fuels. And because they burn much cleaner, engine filters remain cleaner for longer reducing the need for maintenance. Furthermore, given used cooking oil, vegetable oil, processing waste, and animal fat waste are used as inputs, the production of these fuels reduces biowaste, thereby cutting emissions from landfills.

This makes renewable fuels a key component of the circular economy. Humans have largely operated on the linear model historically when it comes to utilising natural resources. The circular model, in contrast, is much less wasteful and seeks to recycle as much as possible (see Figure 2 below).

Figure 2: The Circular Economy

The most exciting thing about renewable fuels is the immediacy with which they can make an impact. The reason why they are referred to as drop-in fuels is that they can replace fossil fuels in internal combustion engines with little or no modification required. So, if supply was abundant enough, forms of transport which cannot be electrified easily like heavy duty trucks, ships, and aeroplanes can be switched across to renewable fuels making a significant improvement to the environmental footprint. According to BP, “A return flight between London and San Francisco has a carbon footprint per economy ticket of nearly 1 tonne of CO₂ equivalent. With the aviation industry expected to double to over 8 billion passengers by 2050, it is essential that we act to reduce aviation’s carbon emissions.”

The challenge

Renewable fuels or biofuels are still in their infancy. This means the obvious hurdle to overcome is cost competitiveness with fossil fuels. Cost estimates vary, but figures from the International Air Transport Association (IATA) provide a useful sense for the ballpark. In May 2022, IATA stated that the average worldwide price of jet fuel is about $4.15 per gallon compared to the US average price of a gallon of sustainable aviation fuel, which is about $8.67.

So, roughly double the price of the incumbent polluting technology. This is not a bad starting point at all. Considering how rapidly the cost of energy storage in batteries has fallen in the last decade, renewable fuels could become competitive quite soon if sufficient investment is made and economies of scale are achieved. IATA also predicts that renewable fuels could make up 2% of all aviation fuels by 2025, which could become a tipping point in their competitiveness.

Businesses are acting

Businesses pursuing their own net zero targets have already started exploring renewable fuels to minimise their waste. Darling Ingredients Inc, which produces its trademark Diamond Green Diesel from recycled animal fats, inedible corn oil, and used cooking oil, was chosen by fast food chain Chick-fil-A in March 2022 to turn its used cooking oil into clean transportation fuel.

Similarly, McDonald’s entered into a partnership with Neste Corporation in 2020 to convert its used vegetable oil into renewable diesel and fuel the trucks that make deliveries to its restaurants. According to TortoiseEcofin, both Darling Ingredients and Neste have a net negative carbon footprint given emissions produced by these businesses are lower that the emissions avoided because of their renewable fuels.

Annons

A final word

Renewable fuels alone will not tackle climate change. No single solution can. But they can help us make meaningful progress. The Intergovernmental Panel on Climate Change (IPCC) emphasises how crucial it is for the world to halve its greenhouse gas emissions this decade to at least have a chance of limiting global warming to 1.5^oC. This means that solutions with an immediate effect have an important role to play. Biofuels can cut emissions from waste in landfills and provide much cleaner alternatives to fossil fuels to help accelerate the world’s decarbonisation efforts. They don’t require different engines to be of use. They just need funding to reach scale.

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

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Analys

Oil prices climb, but fundamentals will keep rallies in check

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3 dagar sedan

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18 mars, 2025

Redaktionen

Brent crude prices have risen for three consecutive days, gaining USD 1.7 per barrel since last Thursday’s close. On Friday afternoon, prices briefly dipped to USD 69.9 per barrel before rebounding to a high of USD 71.8 per barrel yesterday morning. As of this morning, Brent crude is trading at USD 71.67 per barrel, up USD 0.77 per barrel since midnight.

Ole R. Hvalbye, Analyst Commodities, SEB

Why?

1. Chinese economic data
Two days ago, China released better-than-expected consumption, investment, and industrial production data for the start of the year, signaling economic resilience despite the need for further stimulus. With Donald Trump’s tariffs posing a risk to growth, China has responded by committing to policies aimed at boosting incomes, stabilizing equity and real estate markets, and reviving economic consumption – all of which naturally support crude and refined product demand.

2. U.S. strikes on Yemen’s Houthis
The U.S. airstrikes on Yemen’s Houthis on Sunday, March 16 served as a stark reminder of geopolitical risk, a factor that has not been fully priced into the market recently.

3. Rising tensions in the ME
Escalating tensions in the Middle East are currently (short-term) overshadowing concerns about a potential global oversupply. Overnight, Israel launched a series of military strikes on Gaza, breaking a nearly two-month ceasefire.

4. U.S. sanctions on Iran
Iran’s Oil Minister stated over the weekend (March 15) that Iranian oil exports are “unstoppable” and that Iran will not relinquish its share in the global oil market. The new U.S. administration has already imposed sanctions on Iranian crude, but these have yet to impact production levels significantly.

As of February 2025, Iran’s crude production stood at 3.23 million barrels per day (bpd), remaining above 3 million bpd since September 2023 (Platts data). Of this, Iran exports approximately 1.7 million bpd. For comparison, under Trump’s previous presidency, the U.S. withdrew from the Iran nuclear deal, and Iranian crude production fell to 1.95 million bpd by August 2020, significantly reducing its export capacity.

If the Trump administration reintroduces maximum pressure sanctions on Iran, the market impact could be substantial. In a worst-case scenario, where Iran loses its entire 1.7 million bpd of exports, and if Saudi Arabia or other major producers do not immediately compensate for the loss, global oil prices could theroretically see an upside of as much as USD 10 per barrel (Platts).

Bearish fundamentals still loom:
Despite these bullish factors, crude remains on track for a quarterly loss due to fundamental market weaknesses. Escalating global trade tensions threaten oil demand. OPEC+ is set to increase production from April, adding additional supply to a market already at risk of oversupply.

As a result, while geopolitical risks and bullish headlines provide short-term support to prices, SEB: forecasts that fundamental market conditions limit the potential for sustained price rallies.

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Analys

Chinese stimulus measures drive Brent up and out of the USD 69-71/b trading range

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4 dagar sedan

den

17 mars, 2025

Redaktionen

A tight sideways range last week. Bearish equities on tariff fears. Brent crude rose 0.3% last week with a close of USD 70.58/b. It traded in a range of USD 68.63 – 71.25/b. Closing wise it held well within the USD 69 – 71/b band, held down by S&P 500 moving into correction mode and the Russel 2000 index moving into bear territory. Brent is up 0.6% this morning at USD 71/b with a high so far today of USD 71.8/b. That is the highest intraday price point since 3 March. Brent crude is thus pushing towards the upper boundary of the trading range over the past 8-9 days.

Bjarne Schieldrop, Chief analyst commodities, SEB

Chinese stimulus measures feed some optimism back in crude. The upwards move this morning is driven by news that politicians will boost people’s income, revive consumption and stabilize the stock and real estate market. The Chinese economy has been struggling for a while following Covid-lockdowns and a tanking real estate market. The tariffs from Donald Trump are now an additional challenge making it even more imperative to support the Chinese economy. While the signaled measures are supportive and positive, words like ”reasonable” growth in wages are used. There isn’t any sense of ”bazooka” stimulus measures as of yet.

Moving up with the negative fallout from the Trump tariffs is left for another day to worry about. The oil market is thus in a balance between the negative effects of Trump’s tariffs versus the positive effects of Chinese stimulative measures. The global oil market isn’t in surplus yet if we look at the 1-3mth time-spreads as a measure. The bearish downwards pressure on oil has come from the forceful selloff in US equities with natural fears that the tariffs from Trump will give both the US and the global economy a hard, negative kick. But today it seems that the positive political signals from China on stimulus there is set to lift Brent crude up and out of the depressed range it has traded in over the past 8-9 trading days. The negative fallout from the Trump tariffs is left for another day to worry about it seems.

Brent crude 1mth has traded in a tight range over the past 8-9 trading days when it has closed between USD 69-71/b. Today it looks set to move up and out of that range.

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Analys

Large drop in total commercial petroleum inventories

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1 vecka sedan

den

13 mars, 2025

Redaktionen

Brent crude prices have risen by USD 0.8 per barrel so far this week since Monday’s opening. However, prices touched a weekly low of USD 68.6 per barrel on Tuesday before reaching a weekly high of USD 71.20 per barrel this morning.

Last week, U.S. crude oil refinery inputs averaged 15.7 million barrels per day, up by 321 thousand barrels per day compared to the previous week. Refineries operated at 86.5% of their total operable capacity during this period. Gasoline production declined to an average of 9.6 million barrels per day, while distillate fuel production also fell, averaging 4.5 million barrels per day.

U.S. crude oil imports averaged 5.5 million barrels per day, a decrease of 343 thousand barrels from the prior week. Over the past four weeks, imports have averaged 5.8 million barrels per day, reflecting a 10.6% year-on-year decline compared to the same period last year.

Total commercial petroleum inventories fell by a large 6.0 million barrels, contributing to some positive price movements observed yesterday evening and this morning. Although commercial crude oil inventories (excluding the SPR) increased by 1.4 million barrels, this was notably lower than the 4.3-million-barrel build forecasted by the API on Tuesday. With the most recent build included, U.S. crude oil inventories now stand at 435.2 million barrels, down by 12 million barrels compared to the same week last year.

Gasoline inventories decreased by 5.7 million barrels, exceeding the API’s reported decline of 4.6 million barrels. Despite this, gasoline stocks remain 1% above the five-year average. Distillate (diesel) inventories dropped by 1.6 million barrels, compared to the API’s forecast of a 0.4-million-barrel increase, and are currently about 5% below the five-year average.

Over the past four weeks, total products supplied, a proxy for U.S. demand, averaged 20.7 million barrels per day, a 3.9% increase compared to the same period last year. Gasoline supplied averaged 8.7 million barrels per day, showing a modest increase of 0.1% year-on-year. Diesel supplied averaged 4.1 million barrels per day, up by 9.5% from the same period last year. Additionally, jet fuel supplied saw a 1.5% year-on-year increase.

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