Biodiesel Resilience Meets Energy Reality

Energy curves remain the clearest signal on direction. The RBOB curve is already in contango, explicitly pricing surplus gasoline and weak demand expectations into early 2026 — Jan/Apr RBOB is trading near –23 c/gal. ICE gasoil remains backwardated, but that structure continues to erode. December expired at +31, yet Jan/Apr is now near +13.50, down roughly 21% over the past three months. Gasoline is leading the adjustment while diesel is lagging, a familiar setup. Historically, this configuration does not persist for long; when gasoline moves decisively into contango and gasoil backwardation shrinks, distillates tend to converge toward gasoline rather than decouple.

Part of the market has attributed the erosion in gasoil backwardation to tentative pricing of de-escalation around Ukraine. That interpretation deserves caution. USD/RUB is not confirming progress, with the ruble weakening again, suggesting negotiations are not going smoothly — or at least not cleanly enough to justify removing risk premium with conviction. For traders, this keeps gasoil downside incremental rather than one-way. Gasoline remains the cleaner demand signal; diesel still carries geopolitical optionality on top of slowing demand.

European vegetable oil curves remain heavy and consistent with the energy message. Dutch and German soybean oil are still in contango beyond Q1, with May–Jul and Aug–Oct materially lower than the front, while rapeseed oil is flat but offered in the back end. There is no feedstock response to gasoline weakness yet; the structure remains defensive rather than constructive.

In Northwest Europe, ARAG window pricing remains firm and, importantly, above monthly averages. FAME 0 is holding in the low-$1,300s/mt, RME in the mid-$1,400s/mt, with HVO north of $2,400/mt and SAF above that. Everything trading above the monthly average matters. It signals residual optimism and improved clarity, not denial of weaker energy. The German cabinet’s passage of RED III implementation has removed a key layer of regulatory uncertainty, and desks are responding accordingly. Window activity looks constructive but measured — confidence has improved, aggression has not.

Palm oil is the numerical pressure point in the global vegoil complex. Malaysian stocks are now 2.84 million metric tons, up 13% month-on-month and the highest level in more than 6.5 years. At the same time last year, stocks were closer to 2.3–2.4 million tons, implying roughly 450–500k tons of excess inventory versus 2024. Export velocity is not offsetting the build: early-December shipments are running ~10% lower month-on-month, meaning inventories are still accumulating.

Seasonality worsens the math. January and February are structurally weak demand months for palm due to winter formulation constraints. Even assuming a seasonal production decline of 8–10%, exports would need to improve materially just to hold stocks flat. At current run rates, a further 100–150k tons per month of build is plausible, putting 3.0 million tons firmly in view by late Q1. Above that level, storage efficiency deteriorates and price-led demand rationing typically becomes unavoidable. This is already reflected in relative pricing: BOPO has collapsed from historical highs, forcing palm back into blends. In prior cycles, inventories in the 2.8–3.0 million ton range required palm to cheapen by 10–15% relative to competing soft oils before export demand re-engaged meaningfully. That adjustment appears underway but not complete.

In the U.S., policy continues to suspend price discovery. D4 RINs remain firm near ~1.08, reflecting compliance tension rather than demand growth. Noise around reviving the biodiesel blenders tax credit (BTC) has increased as pressure on farmers and jobber blenders mounts, while the half-RIN framework for imports continues to gain acceptance. Together, these dynamics keep CBOT soybean oil futures sticky, even as global vegoil balances are historically high and soybean oil carry remains very strong through May.

That stickiness does not remove pressure — it redirects it. Palm is absorbing the first leg. South America is next. With U.S. futures insulated and European biodiesel trading above monthly averages post-Germany, basis is where the clearing has to occur. FOB Paranaguá soybean oil premiums remain the release valve, and a sharp move lower is a realistic outcome depending on how long soybean oil futures stay U.S. policy-supported and how aggressively palm cheapens to restore export velocity. This matters even more given that Congress has funded USDA through Sep 30, 2026, but not EPA or IRS, both of which remain subject to the budget CR expiry on Jan 30, 2026.

Asia reinforces the same setup. Diesel timespreads have softened, refinery selling continues at discounts, and palm futures are reacting to rising stocks and slower exports. Structural SAF and marine biofuel headlines remain supportive in the background, but near-term volumes are too small to offset weakening energy expectations and surplus feedstocks.

Bottom line: gasoline is already in contango, diesel backwardation is eroding but not gone, vegoil curves remain heavy, and palm inventories are forcing price discovery. Everything trading above monthly averages in ARAG reflects clarity after Germany, not complacency. Policy can delay futures downside, but it cannot absorb global surplus indefinitely. The market is clearing through basis and relative spreads, not a disorderly collapse in flat prices — and geopolitics, as signaled by USD/RUB, has not exited the system.