What is the impact of supply oversaturation in the biodiesel market?
Banker asked:
Currently production capacity is 580MM gallons; an additional 1,400MM gallons are expected to be produced within the next 18 months, bringing the total supply around 2 billion gallons annually. Demand is very heavy due to government tax incentives and regulations, however at some point the market price of biodiesel has to decrease as consolidation in the supply market (like Exxon) will drive prices lower. Currently price of biodiesel is around $2.75/gallon. What is the impact of supply oversaturation in the biodiesel price?
Currently production capacity is 580MM gallons; an additional 1,400MM gallons are expected to be produced within the next 18 months, bringing the total supply around 2 billion gallons annually. Demand is very heavy due to government tax incentives and regulations, however at some point the market price of biodiesel has to decrease as consolidation in the supply market (like Exxon) will drive prices lower. Currently price of biodiesel is around $2.75/gallon. What is the impact of supply oversaturation in the biodiesel price?
the laws of supply and demand are in play at this situation and they always will be. if the supply exceeds the demand the price or the supply will drop or they will look at other markets to supply to as well to maintain the demand. most likely they will hit the advertising trail to increase the demand
The price will drop.
Don’t worry, the demand for diesel will always be strong, even with stronger conservation measures. The supply, on the other hand, is less assured. Now I’m no economist, and I’m no expert in the oil markets, but I did take econ-101, so I know that fundamentally the price is set by supply and demand. I also know about the theory of “peak oil” which seems real. I believe that “consolidation” could cut costs, and potentially reduce prices. As long as you’re not talking about consolidation to the point of a monopoly, then I doubt consolidation will be a primary factor, it’s just one of many minor factors. The energy industry is changing year-to-year, but I doubt that it will change drastically overnight in a way that’s irrecoverable. Usually a diversity of products and investments brings stability, and less volatility in the market is probably good long-term for consumers, smaller businesses, and green energy.