Biodiesel Pulls Back With Diesel, But Soybean Oil Bets Point to a Policy Shock Ahead

Europe opened the week with clear downward pressure as front-month ICE gasoil fell to 683.13, taking roughly 10% out of the backwardation down the curve. With the diesel risk premium collapsing on growing confidence in a Ukraine peace framework, biodiesel flat prices in ARAG adjusted lower. FAME 0 traded around 1,290/mt, RME around 1,465/mt, and UCOME close to 1,530/mt. HVO Class 2 eased toward 2,450/mt while SAF held in the 2,820–2,860/mt range. The physical barge market remained extremely quiet, with refiners showing no urgency to pick up prompt barrels while diesel continues to trend lower. Each incremental decline in gasoil further erodes blending incentives, and participants are staying away from the front end until the curve stabilizes.

The UK added an important structural element to the market by imposing anti-dumping duties on Chinese biodiesel imports, applying 14.79 percent for cooperative exporters and 54.64 percent for all others. As in Europe, the UK explicitly excluded SAF from these duties, preserving flexibility for aviation supply while restricting biodiesel inflows. This move increases the likelihood of tighter biodiesel availability in the UK, though the benefit is muted by the collapse in diesel, which reduces blending needs. The decision also raises the probability of future EU alignment, and in the meantime could redirect Chinese biodiesel toward continental ports unless Brussels chooses to respond. Still, ARAG balances today are dictated overwhelmingly by diesel weakness, not by import policy.

Global vegoil fundamentals remain decisively heavy. China exported 70,877 tons of soyoil in October and 329,000 tons year-to-date, close to triple its entire 2024 volume. This surplus is flowing mainly to India at a discount of about 10–15/mt to South American oil, displacing traditional suppliers. Rapeseed oil keeps easing across Europe, sunflower oil supply remains abundant from the Black Sea, and soybean oil values outside the United States remain under pressure. This broad softness removes any feedstock support for biodiesel and reinforces the lack of urgency across ARAG.

In the United States, however, the market is quietly preparing for a possible tightening event. With the Clean Fuels Alliance applying pressure in Washington this week, expectations are building that 45Z guidance could be released before month-end. This policy risk is already visible in soybean oil futures: March call options at 55, 60, and 65 cents have each built more than 50,000 contracts of open interest, with new volume concentrated today in the 65-cent strike. This is directional positioning from funds, not hedging. Should 45Z strongly reward biogenic feedstocks, renewable diesel and SAF producers would increase SBO demand immediately. In that case, Chicago soybean oil could push above 55 cents even if the rest of the world remains in surplus. The U.S. market has the potential to re-island itself, trading at a premium dictated entirely by domestic biofuel demand while global vegoils continue to weaken.

Brazil reflects the global oversupply most clearly. Paranagua FOB soyoil premiums have posted deeply negative values across new-crop slots: February at –110/–200, March at –310/–400, April–May at –420/–570 with –570 being the best bid, and June–July at –480/–650. These are among the weakest forward premiums observed this cycle. With China exporting rather than importing, Europe blending less as diesel falls, and Brazil maintaining aggressive crush volumes, the structural conditions are in place for FOB premiums to fall even further. Levels around –800 to –1000 have occurred in past surplus phases and are plausible again if U.S. 45Z guidance tightens Chicago while global markets remain burdened with long supply. Such a divergence would create expensive soybean oil in the United States and unwanted oil in Brazil. D4 RINs are unusually quiet today.

Across Asia, China’s muted domestic consumption continues to push soyoil outward. India remains the primary absorber, receiving Chinese cargoes at competitive discounts. This flow displaces South American oil and keeps downward pressure on international soybean oil benchmarks. Biodiesel demand across the region remains tepid, as lower diesel prices and ample feedstock supplies work against discretionary blending.

Macro oilseed indicators provide no external support. China has not committed to meaningful U.S. soybean purchases, U.S. export inspections remain below required pace, and South American weather is generally favorable. Brazilian forward pricing continues to dominate the global export program well into February. Meal remains the crush driver, keeping oil as the residual product. All of this reinforces a globally oversupplied soybean oil backdrop just as the United States may be on the edge of a policy-driven shift.

The result is a market increasingly split into two directions. Europe softens as diesel collapses, reducing biodiesel blending demand and pulling ARAG flat prices lower. Global vegoils are heavy due to Chinese surplus exports and aggressive Brazilian crush. The UK’s duties on Chinese biodiesel, excluding SAF, tighten import channels but cannot overcome the drag from low diesel. Meanwhile, the United States faces the possibility of a soybean-oil tightening if 45Z guidance lands on the bullish end of expectations. A combination of falling gasoil on peace optimism and a potential U.S. policy-driven SBO rally sets up a two-speed Q1: cheap feedstocks internationally and expensive feedstocks domestically. Such a divergence will reshape biodiesel flows, arbitrage structures, and margin profiles as the year turns.