Larger economy Latin America may increase the biodiesel blend from 10% to 15% if diesel inventories remain at low levels during the second half, according to people with direct knowledge of the matter, who asked not to be identified because the discussion is not public. The increase would be in effect for a limited time, one of the people said.
Using more biodiesel would actually raise fuel prices, as biodiesel is more expensive than petroleum-based fuel. Diesel prices are already at record levels due to tighter global supply amid sanctions on Russia following the invasion of Ukraine. The higher mix would help maintain inventories at a time when there is a greater risk that US supplies will be reduced due to hurricanes in the Gulf of Mexico.
Brazilian President Jair Bolsonaro is working on proposals to ensure fuel supplies with minimal impact on prices as the country struggles amid high inflation and awaits re-election in October. Blending more biodiesel would require more soybeans to be crushed in Brazil rather than exported, squeezing supply and threatening to worsen runaway food inflation.
An increase in blending could reduce diesel imports by five ships a month from the typical 20 to 30 ships, according to estimates by Pedro Shinzato, an oil analyst at StoneX.
Industrial group Abiove said producers can supply oil for a 12% biodiesel blend using current inventories and exportable surplus. To reach 15%, Brazilian producers would need to crush another 3 million tons of soy, according to a person familiar with the matter. This is on top of the 48 million tonnes estimated for this year.
Soybean oil prices are trading near all-time highs in Chicago due to tight supply concerns. Demand for soy oil has been rising amid falling exports of rivals’ palm oil, due to protectionism measures, and sunflower oil because of the war in Ukraine. On Wednesday, Brazil’s national supply company Conab cut its estimate for bean exports this year as strong demand for soy products favored crushing.
The Energy Ministry press office said there was no decision on the matter at the moment. Brazil’s oil regulatory agency, known as the ANP, said in a statement that it was monitoring the situation and proposing necessary measures to secure diesel supplies, without mentioning what measures had been proposed.
Brazil’s main oil union, known as the FUP, has warned that diesel prices could reach 10 reais per liter ($7.77 per gallon) during the second half of the year from the current level of around 7 reais. , according to a statement published on June 3. The union had also warned that increased demand during the agricultural season added to a shortage of supply. Farmers typically use more diesel during the third and fourth quarters of the year.