Used cooking oil (UCO) has emerged as a crucial feedstock in the production of renewable diesel and sustainable aviation fuel, making it a pivotal component in the renewable energy supply chain. With government-backed incentives and mandates driving the global shift toward more sustainable and lower-carbon energy sources, the demand for UCO as a biofuel feedstock continues to rise, signaling the health and growth of the biofuel market.

Powering the Future with Renewable Fuels

The Surge in UCO-Based Biodiesel Production

In recent years, the production of UCO-based biodiesels has experienced a significant surge, with more sources collecting and refining waste-based cooking oils. This trend reflects the growing importance of UCO as a renewable fuel feedstock, as the market responds to the increasing demand for cleaner energy sources. By monitoring UCO prices, market participants can gain valuable insights into the supply-demand dynamics and assess the competitiveness of the renewable fuels industry, allowing them to manage the risks associated with sudden price movements.

Futures Contracts: Hedging Price Volatility and Facilitating Risk Management

Futures contracts are standardized, legally binding financial agreements that enable market participants to buy or sell a specific underlying asset, such as UCO, at a predetermined price and a future date. Traded on exchanges, these contracts provide a platform for price discovery, risk management, and speculation on a wide range of assets, including renewable fuel feedstocks.The recent launch of the US Gulf Coast Used Cooking Oil (Fastmarkets) Futures contract by the Intercontinental Exchange (ICE) is a significant development in the renewable energy market. This cash-settled contract, which is underpinned by Fastmarkets' physical US Gulf Coast Used Cooking Oil assessment, offers market participants the opportunity to manage their price exposure to UCO without the need for physical delivery. This contract is particularly well-suited for those seeking effective risk management in the evolving renewable energy landscape.

The Importance of Spot Price Assessments

Fastmarkets' used cooking oil Gulf spot price assessment plays a crucial role in the renewable energy supply chain. The Gulf price benchmark reflects the primary market region for UCO trade, allowing Fastmarkets to capture the broadest data pool and provide a standardized reference point for the industry.Fastmarkets' UCO Gulf spot price assessment adheres to IOSCO principles and undergoes annual IOSCO audits to ensure high standards in price reporting. The assessment process involves expert reporters who collect data on spot trades, bids, offers, and cross-check rumored deals or movements in related commodities. This rigorous methodology ensures transparency and accuracy, making the Fastmarkets UCO assessment a reliable reference for market participants.

Driving Liquidity and Transparency in the Biofuel Feedstock Market

The launch of the ICE Fastmarkets UCO futures contract is a timely and strategic move, as the UCO market continues to evolve with increased volumes and more stakeholders entering the space. The contract provides a valuable tool for a wide range of participants across the biofuel supply chain, including feedstock suppliers, refiners, traders, financial institutions, and biodiesel producers.By using the UCO futures contract, market participants can directly manage their price exposure to used cooking oil, a historically challenging process. As biofuel markets continue to mature, this contract will support price stability and cash flow management, while also helping to deepen liquidity and transparency in the UCO and broader biofuel feedstock markets.The convergence between the futures price and the spot price at expiry, facilitated by Fastmarkets' rigorous price assessment methodology, ensures that the contract serves as an effective tool for price discovery and risk management in the renewable energy sector.