COVID-19 outbreak has sent shockwaves through the global economy, and the impact is seen by oil product markets.
FREMONT, CA: The COVID-19 pandemic has sent a shockwave through the global oil industry, which, along with the following oil prices shock, has created a different set of challenges for the biofuels sector. The impact of COVID-19 is demand destruction. The demand destruction has particularly affected air platforms as well as on the road.
The crisis is very significant and can blow to the near-term outlook for bio-jet fuel. Still, the cost of producing bio-jet fuel is much higher than the conventional jet kerosene. Minimized oil prices, the competitiveness threshold for bio-jet now looks even more remote. Aviation is also one of the hardest-hit industries from the COVID-19 crisis with many airlines requiring government bailouts and others facing bankruptcy. The global aviation sector will likely be significantly reduced by the crisis, so the investments in bio-jet businesses can suffer. Supportive policies and long-term environmental goals, however, can underpin a better long-term outlook for the bio-jet.
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The lockdown measures have caused a sharp decline in demand for road fuels as nations around the world to minimize or restrict the movements of their citizens. The shock has had an impact on demand for the biofuels. Though the market will recover as restrictions reduce, the reduction in oil prices creates a challenging and competitive environment for the biofuels. If oil prices remain approximately or around $40/bbl, biofuels will struggle to attain market share beyond reduced blending mandates, capping the potential for growth.
Lockdown measures have caused a hold in the global demand for transport fuels, into which the biofuels are typically blended. Moreover, low oil prices mean biofuels are less competitive and can struggle to maintain in the market share.
Supply chain and cheap oil disruptions put pressure on margins for producers, which could lead to consolidation in key markets. More significant policy uncertainty as lower oil prices increases the need for policy support to maintain the growth of the biofuels industry. COVID-19 has caused several delays to the planned policy rollouts and risks weakening existing support if credit prices fall.
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