+115 ICE Backwardation, 63% Gasoil Vol, and a 40 Dollar RME UCOME Spread

Two wars are ongoing maybe 3 if you count Lebanon and yet cross asset signals remain uneven. Front end equity volatility stayed subdued while longer dated volatility moved higher, signaling regime uncertainty rather than immediate financial stress. USD RUB remained relatively calm near 77, which suggests FX markets are not pricing imminent escalation in Ukraine despite the parallel conflict in the Middle East. Energy markets, however, are clearly pricing risk.

ICE gasoil Mar Jul closed at +115.50. That level of +backwardation reflects pronounced prompt tightness in Europe. In Asia, March April diesel and jet timespreads reached their strongest levels since Q4 2022, refining margins approached 30 dollars per barrel, Singapore 10ppm gasoil cash differentials rose to 4.25 per barrel and jet differentials moved to about 4.05 per barrel. This is synchronized distillate firmness across regions.

The options market reinforces that concentration of risk. ICE gasoil May 900 calls traded with implied volatility near 63 percent. With gasoil near 817, that strike sits roughly 80 dollars out of the money. Paying 63 percent implied volatility for upside convexity signals genuine concern about further escalation in prompt tightness. By contrast soybean oil options carry heavy open interest at 65 and 70 cents, but implied volatility sits near 34 percent and daily volume was light. Energy tail risk is being priced aggressively. Feedstock volatility is not.

For biodiesel, strong diesel is usually constructive and that dynamic is visible in Europe. Flat prices firmed in line with gasoil. RME implied near 1,396 per metric ton and UCOME near 1,435. The RME UCOME spread therefore sits around 39 to 40 dollars per metric ton. In episodes of genuine waste scarcity UCOME has traded 80 to 100 dollars over RME. At roughly 40, the market is not signaling acute used cooking oil tightness. Diesel strength is lifting both grades without creating hierarchy stress inside the bio complex.

Liquidity patterns confirm caution rather than exuberance. Week 9 biodiesel paper across RME, FAME0, UCOME and HVO2 totaled about 1.14 million tons versus roughly 0.24 million two weeks earlier. That near fivefold increase in swaps activity shows participants managing volatility through liquid instruments rather than expanding physical exposure while geopolitical risk remains elevated.

In the US, diesel strength improved near term economics but compliance buffers remain decisive. Biodiesel crush swung by roughly 17 cents per gallon and is now near plus 1 cent in the front month. However May remains around minus 12 cents and June around minus 10 cents per gallon. The large D4 RIN bank entering the year continues to dampen immediate price response even as diesel rallies.

The structural anchor remains RVO math. Revised 2026 to 2027 projections by Farmdoc Daily imply roughly 20 billion pounds per year additional domestic feedstock use compared with the 2023 to 2025 average, close to an 88 percent increase. That scale of adjustment implies elevated volatility in D4 RINs, biodiesel and feedstocks as the system expands. Figure 3 in the half RIN analysis clearly shows the step change in domestic lipid demand into 2026 and 2027.

The half RIN decision determines how that incremental burden is allocated. If half RIN treatment remains for certain imported pathways, more of the projected 20 billion pounds must be sourced domestically, tightening US soybean oil, UCO and tallow balances more aggressively. If it is removed, imports regain competitiveness and domestic feedstock pressure eases.

So the integrated picture is coherent. Two wars are ongoing maybe 3, equity front vol is calm, the ruble is stable near 77, but energy spreads are extreme at +115.50 and gasoil implied volatility sits near 63 percent. Biodiesel benefits from diesel strength in Europe. The RME UCOME spread near 40 signals stable waste supply rather than stress. In the US, front month margins improve but forward months remain constrained by the RIN bank and pending RVO clarity. Energy is driving the near term. Policy and feedstock arithmetic will define the next phase unless geopolitical escalation turns Biodiesel/RD into remedial barrels.