+500/mt Gasoil Backwardation Exposes the Limits of Soyoil Demand

Energy markets continue to price extreme tightness across the curve. Apr/Dec ICE gasoil backwardation is now approaching +500/mt, confirming that the system is not only short prompt barrels but structurally tight forward. In the physical market, Asian 10ppm diesel cash differentials are near $43/bl with outright values around $220/bl, while refining margins are holding close to $60 to $65/bl. Naphtha cracks are above $400/mt with front spreads near $120/mt backwardation. Across the barrel, the signal remains consistent, prompt and forward supply is tight and increasingly priced as such.

Last weekend was pivotal because the war moved beyond a bilateral Israel Iran confrontation and into direct pressure on Gulf energy infrastructure. This weekend looks equally important. Hezbollah and other Iran aligned actors are already in the fight, Hormuz remains shut, and every additional week of disruption tightens the squeeze on physical energy markets and the wider economy. I do not know what form the next step of escalation takes, but the risk is higher, not lower, as the region moves through Eid. For markets, the issue is no longer whether energy is tight. It is whether another weekend of escalation turns tightness into outright rationing. Next week is W4.

In Europe, biodiesel trading is not following the strength in energy. Today’s ARA barge window produced only four trades, a sharp drop from yesterday’s activity. UCOME traded at 295 to 305, FAME at 177, and RME at 274. Yesterday saw multiple prints in UCOME between 280 and 300 and FAME closer to 165 to 170. Prices are holding, but participation has dropped materially. In a market with +500/mt backwardation in gasoil, this lack of urgency from buyers indicates that feedstock is not scarce.

European feedstock pricing confirms the same divergence. FOB Rotterdam rapeseed oil is indicated around 1,110 to 1,140 euro per metric ton nearby and 1,085 to 1,100 forward. Rapeseed oil is now trading below soyoil equivalents in NWE, reversing the normal premium structure despite better GHG performance. This reflects adequate supply and limited urgency to secure material even as energy markets tighten.

The global soyoil signal remains weak. May July soybean oil is trading around +0.20 inverse after collapsing sharply over the past three months. At the same time, FOB Paranagua soyoil basis is weakening again and trading deeply negative versus CBOT, reflecting strong farmer selling and limited export pull. The structure is clear, flat price is supported by energy, but the physical market is long oil.

Oilshare is now giving a misleading signal even in its primary US context. Oilshare assumes that soybean oil can scale proportionally with energy demand. That assumption breaks once carbon intensity becomes binding.

Under LCFS, fuels clearing the market typically sit in the 20 to 40 CI range. Under 45Z, the most valuable credit bands are also in that range. Soybean oil pathways are structurally higher, often between 55 and 70 CI depending on assumptions. A gap of 20 to 30 CI points translates into a loss of roughly 0.30 to 0.80 dollars per gallon depending on credit levels. That gap is large enough to force blending with lower CI feedstocks or to push soyoil out of the marginal gallon.

This means that even in the US, soyoil demand is capped by CI economics rather than availability. Oilshare does not capture this constraint and therefore overstates effective demand. It means, we are overstating oilshare by at least 10% point.

In Europe, the constraint appears through GHG savings rather than subsidy. There is no direct credit mechanism equivalent to LCFS. Value is established through compliance within the mandate, and feedstocks compete on GHG performance and cost. Rapeseed oil should command a premium due to better GHG savings, yet it is trading below soyoil. This confirms that the system is long feedstock but selective in what it values.

The conclusion is consistent when separating regions. Energy markets are tight, with Apr/Dec gasoil near +500/mt and diesel premiums near record levels. European biodiesel markets are stable but losing momentum, with only four trades today. Feedstocks are not scarce, with rapeseed oil trading below soyoil and global soyoil basis deeply negative.

Oilshare suggests strength, but it is measuring total oil availability rather than usable oil. The constraint is not total supply. The constraint is the availability of compliant low CI feedstock.

Until that tightens materially, biodiesel will not fully follow gasoil, and soyoil remains exposed to further downside relative to both gasoil and lower CI alternatives.