Biodiesel and RD Resist the Hormuz Repricing

Another energy selloff pushed Brent down 5.26% to $79.36/bbl and August ICE gasoil down $70.25/mt to $1,136/mt. August/September gasoil backwardation fell to +$41/mt, while August/December dropped to +$176.25/mt from almost +$288 only days ago. Heating-oil and 3:2:1 screen cracks remain paralyzed near $81.42/bbl and $56.47/bbl, both close to twenty-year highs - Trump scared refiners' margin with his comments. Strait of Hormuz traffic remains the best physical test of the settlement narrative. Crossings are running near five vessels per day versus a 2021 to 2025 average of 37.6 and a previous low of 28. The latest breakdown showed only three tankers, including two chemical or product carriers, with no crude or LNG tanker crossing. Gulf oil flows remain near 36% of prewar levels. Futures often price a reopening before inventories rebuild, which challenges our complacency thesis. Still, curve compression now assumes a pace of normalization unsupported by traffic running near 13% of its historical average. Holiday participation makes this disconnect easier to ignore and leaves the market exposed to a fast reversal.

Northwest European biodiesel paper finally showed better turnover, with 72.9 kt reported across RME, RME/FAME, FAME, UCOME and HVO Class 2. UCOME traded 15 kt and HVO Class 2 traded 26 kt, placing 56% of total activity in advanced fuels. This headline overstates outright HVO demand because 24 kt traded in the September/October spread, leaving only 2 kt of outright HVO volume. UCOME provided the cleaner signal, with September trading between +$575 and +$585/mt over gasoil. September RME traded near +$470/mt, Q4 FAME near +$398/mt and September HVO Class 2 near +$1,745/mt. Most of the premium increase came mechanically from the $70.25/mt fall in gasoil. Indicative September flat prices stood near $1,536/mt for RME, $1,431/mt for FAME 0, $1,636/mt for UCOME and $2,811/mt for HVO. Outright UCOME strengthened while outright HVO weakened, so the session supports a selective waste-based biodiesel demand thesis rather than an across-the-board shortage in advanced fuels.

The US biodiesel and RD complex also resisted the energy liquidation, despite softer prompt structure. September soybean oil held near 68.20 cents/lb, equal to roughly $1,504/mt, while September/January backwardation narrowed to 0.79 cent/lb. December 2026 D4 RINs fell 2.3% to $2.19. The front RD crush declined 4.03% to about $0.85/gal and conventional biodiesel crush fell 2.65% to about $1.31/gal, though their three-month gains remain near 158% and 56%. EPA granted one full small-refinery exemption, two 50% exemptions and rejected three applications as ineligible, a smaller waiver package than traders had feared. Soybean export demand provides another layer of support. Over twelve sessions, USDA announced more than 1 million mt of 2026/27 soybean sales to China and another 750kt to unknown destinations, equal to roughly 64 million bushels. Export inspections are running 2%, or 28 million bushels, ahead of the required pace, while US beans remain cheaper than Brazil through November. This pace supports soybean futures and soybean oil even as energy falls. The counterargument remains record supply. June crush reached 217.8 million bushels, the highest June total on record, and soybean-oil output rose 7.7% from last year. We expect July to look like June. Current strength is demand and policy led, not evidence of an immediate soybean-oil shortage.

BOGO gives the clearest warning against reading the energy selloff as broad normalization for biodiesel and RD. We expected the spread to test +$40/mt, but it appears to have bottomed near +$164/mt before rebounding to +$367 on the weekly chart and +$408.54/mt today. The move represents a rise of roughly $244.50/mt, or 149%, from the low in only a few sessions. We were right on the initial direction and wrong on the likely magnitude. The rebound also needs qualification. September soybean oil remains near $1,504/mt while September gasoil has fallen toward $1,095/mt, so most of the widening comes from the fossil leg. ICE gasoil at $1,136/mt remains above its 20-day weighted moving average near $1,007/mt. Soybean oil at 68.18 cents/lb has traded below its 20-day average near 71.81 cents/lb but remains above its 50-day average near 65.72 cents/lb. A gasoil move toward its 20-day average, combined with soybean oil holding medium-term support, points toward BOGO between +$440 and +$500/mt. A failed Hormuz agreement would reverse this quickly as gasoil regains scarcity premium. A successful reopening would widen BOGO first, then place pressure on soybean oil through lower biodiesel and RD substitution value. The +$440 to +$500 range is therefore a target zone, not a one-way forecast.

Asia reinforces the difference between prompt availability and deferred feedstock stress. Malaysian palm stocks are estimated near 2.62 million mt, up 3% on the month, while July production rose 7.9% to 1.77 million mt and exports increased 15% to 1.38 million mt. Prompt palm supply looks manageable. Forward mandate economics look less comfortable, with POGO rising from modest prompt levels toward +$220/mt by December and above +$300/mt by spring 2027. China’s UCO exports are averaging about 260,000 mt per month in 2026 versus 230,000 mt in 2025, so current export availability remains strong. Chinese renewable-fuel capacity is projected to reach 11 million mt by 2030, with 73% directed toward SAF, increasing future competition for the same waste feedstocks used by European UCOME and global RD. I still wonder why China prefers to export its UCO (GHG savings) rather than force its transformation into SAF considering overcapacity in HVO/SAF refinining . The immediate biodiesel and RD market is therefore supported by compliance demand, export-led soybean strength and falling fossil benchmarks, while the larger feedstock constraint sits farther forward. Outright UCOME, HVO flat price, D4 RINs, BOGO and Strait of Hormuz traffic now offer better trading signals than political headlines alone.