Projecting the effect of oil price regimes on biofuel markets

Using oil price projection from the Energy Information Administration (EIA) and Partial Equilibrium Agricultural Trade Simulation (PEATSim) model, this study focuses on projected impact of oil price changes on global biofuel supplies and market prices. High (low) oil prices increase (decrease) production costs; and producers could shift area away from energy-intensive crops. These factors could change the demand for the production of biofuel feedstocks. The costs of producing corn and soybeans in Brazil and the United States are more sensitive to oil price changes than other crops. Under the high oil price scenario, production of corn, wheat and soybeans, the main feedstocks for EU and U.S. biofuels, will slightly decrease compared to the base. In Brazil, the production of sugarcane, the major feedstocks for ethanol, will expected to increase by more than 3 percent per year compared to the base. Demand for global ethanol and biodiesel are expected to rise as oil prices increase, pushing production up by an average of 9 and 6 percent compared to the base, respectively. However, demand outpaces supply, increasing average prices of ethanol and biodiesel by about 30 percent. The market impacts above are reversed in the case of the low oil price scenario, although not necessarily by the same absolute amounts.

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Disclaimer: The views expressed are the authors’ and do not necessarily represent those of the Economic Research Service or the US Department of Agriculture.

 Record created 2017-04-01, last modified 2018-01-23

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