Biodiesel Markets Reprice Risk as Energy Signals a Peace Premium Unwind: ICE gasoil structure and USD RUB imply a 60 to 65 percent probability of a Ukraine deal, shifting biodiesel flat price risk

Global biodiesel markets ended the session with energy structure sending the clearest signal of the day. Jan Apr ICE gasoil backwardation slipped again to 12.50, down roughly 9 percent on the day and now a fraction of early November levels. This move is not about refinery outages or seasonal tightness. It reflects geopolitics. Markets are pricing a Ukraine outcome with a meaningful chance of de escalation. Based on USD RUB trading near 78, FX markets imply a 60 to 65 percent probability of a ceasefire or negotiated framework within the next 6 to 12 months. Energy structure is reacting to this probability well ahead of headlines.

This shift matters directly for flat price risk. In prior cycles, compression in gasoil backwardation of this magnitude translated into 80 to 120 dollars per metric ton downside in gasoil flat price over a short window. Using 100 dollars per ton as a working assumption fits both history and current FX pricing. At a 60 to 65 percent probability, expected value already skews lower even without confirmation of a deal.

For biodiesel, the mechanical impact is clear. A 100 dollar per ton drop in gasoil pulls RME and FAME flat prices down by roughly 70 to 85 dollars per ton even if vegetable oils remain unchanged. It also removes urgency from prompt blending economics and penalizes holding nearby length. This dynamic showed up clearly in European paper activity.

ARAG swap volumes over the past five weeks tell the story. Week 51 peaked at just over 1.0 million metric tons across RME, FAME 0, UCOME and HVO Class II. By week 52, total volume dropped to roughly 270,000 tons. RME fell from about 410,000 tons to 81,000. FAME 0 slipped from roughly 314,000 tons to single digit volume. UCOME eased from around 219,000 tons to 86,000. HVO Class II moved from about 82,500 tons to near 96,500. This is not demand erosion. It reflects paper length stepping aside as gasoil structure flattens and year end liquidity fades.

BOGO reinforces the same message. Front BOGO sits near plus 454. The curve still shows a full contango of minus 45 from Jan through Jul, which penalizes holding nearby length. At the same time, the Jul Dec portion has flipped into backwardation at roughly plus 4. Small, but new. Prompt barrels feel heavy while later balance begins to tighten. This split mirrors gasoil structure closely.

Soybean oil structure remained stable through the holidays. Jan Jul sits in contango at minus 1.33, confirming ample nearby supply. Jul Dec is inverted by plus 0.41, signaling mild concern later in the year rather than immediate stress. South American supply visibility explains this shape. Brazil is effectively planted with production estimates near 180.4 million metric tons. Argentina planting exceeds 75 percent with crop ratings largely normal to excellent. This caps nearby upside and keeps vegoil reactive to energy rather than leading it.

China buying deserves precise context. China has purchased slightly over 8 million metric tons of US soybeans so far this season, equivalent to roughly 125 to 135 Panamax vessels. Against an implied commitment closer to 20 to 25 million metric tons, China remains short by roughly 12 to 17 million metric tons, or another 190 to 280 vessels. With Brazil offering ample and cheaper supply, whether China completes this balance remains a political decision rather than a supply driven one. This explains why US soybeans continue to clear but at a premium driven more by diplomacy than economics.

In physical Europe, month to date flat prices averaged roughly 1,452 dollars per ton for RME, 1,305 for FAME 0, and 1,454 for UCOME. HVO Class II averaged near 2,450. The RME FAME spread remains wide near 150 dollars per ton, reflecting rapeseed tightness on account of difficult navigation on the Rhine river rather than weak demand. UCOME continues to hold value versus FAME, supported by constrained UCO availability and competition from non road uses.

In the US, D4 RINs remain elevated near 1.115 for Dec 26 despite a modest pullback. High RIN values continue to offset weaker biodiesel margins and support domestic production. Imports remain sidelined by 45Z eligibility rules, reinforcing the shift toward domestic supply into 2026.

Asia offered little support to distillates. Singapore diesel cash differentials remain near seven month lows, with refining margins around 19 dollars per barrel. China issued roughly 19 million tons of refined product export quotas for early 2026, keeping pressure on regional middle distillates. Jet fuel arbitrage to the US West Coast remains wide but inactive. This lack of Asian pull helps explain why European gasoil structure continues to soften.

One constructive signal sits outside road fuels. Marine biodiesel demand continues to build, supported by new long term supply frameworks in China linking shipping and fuel suppliers. Volumes are not yet visible in pricing, but this points to steady incremental demand for UCOME type grades over time.

The takeaway is straightforward. Markets are trading probabilities, not headlines. USD RUB near 78 implies a 60 to 65 percent chance of a Ukraine deal or durable ceasefire path. ICE gasoil backwardation confirms this repricing. Flat price risk follows next. Near term biodiesel pricing remains vulnerable while energy structure continues to deflate, even as early signs point to a tighter second half than the first.