BOGO drops on tempered soy optimism as gasoil remains the weak leg of the biodiesel trade despite backwardation

Soybean oil futures ended lower Thursday, with Dec CBOT bean oil down 1% to $1,094.6/mt, while ICE gasoil edged up $2.75 to $721.25/mt, tightening the Nov/Dec backwardation to +$19.50/mt and Nov/Apr to +$67.25/mt—both higher on the day by 8.3% and 5.1%. Yet despite this apparent firmness in the forward curve, gasoil remains the weak structural leg of the biodiesel trade. The price strength is almost entirely curve-driven, not demand-led. Industrial diesel offtake remains subdued, heating-oil cracks have flattened, and the recent rally owes more to speculative positioning and sanctions headlines than to genuine consumption recovery.

The disconnect between firm structure and soft fundamentals helps explain today’s BOGO slump, which fell $12.49 to +$392.83/mt, nearly one standard deviation lower. The decline reflects a market recalibrating after the Trump–Xi meeting hype, which briefly lifted sentiment across the soy complex.

Treasury Secretary Scott Bessent confirmed China’s plan to buy 12 million metric tons of U.S. soybeans this season and 25 million tons annually for the next three years, but traders quickly tempered their enthusiasm. The deal is constructive for forward demand, yet the hyperbole surrounding the announcement—Trump calling the meeting “a 12 out of 10”—underscored the diplomatic theater overshadowing trade substance.

In Europe, ARAG window trades showed muted liquidity: RME $1,429/mt, FAME 0 $1,360/mt, and UCOME $1,511/mt, with RME/FAME $69/mt and UCOME/FAME $150/mt, both narrower on the week. Producers continue to face margin compression as feedstock prices remain elevated and blending demand uneven. The structural fragility of gasoil makes it harder for biodiesel producers to sustain positive returns—when the petroleum leg softens, renewable margins follow.

Meanwhile, Neste’s Q3 earnings showed record-high SAF sales of 251,000 metric tons (up 124% year-over-year) but also a 10% decline in renewable-diesel volumes, confirming a deliberate pivot away from HVO. The company’s Singapore refinery (1.3 million tons per year) faces mounting structural pressure as regulatory shifts and capacity expansions reshape the global market. The U.S. 45Z credit now applies only to domestic production, and from January 2026, imported fuels will receive only 50% RIN value, effectively eliminating U.S. import economics. European imports are equally constrained by protectionist duties and surging domestic capacity, including co-processing & the 1.5 million ton Huelva complex (CEPSA/MOEVA/APICAL) while new projects in Portugal, Sweden, and the Netherlands are coming up.

That leaves Asia as a limited outlet—yet Singapore’s marine biofuel market runs almost entirely on UCOME/FAME B24–B30 blends, not HVO. Even if Neste maximizes SAF output to 1 million tons annually, its remaining 1.6 million tons of company wide renewable-diesel capacity lacks a clear destination. Analysts now expect under-utilization, idling, or rationalization of Singapore’s output after the January 2026 RIN penalty takes effect.

These dynamics make SAF pricing increasingly untenable. With total dedicated global SAF capacity approaching 4–5 million tons by 2026, against an EU mandate of just 2% blending through 2030 (≈1.2 million tons/year), supply growth is far outpacing regulatory demand. Current SAF prices remain three to four times conventional jet fuel, a level unlikely to persist as new European units ramp up.

Beyond short-term distortions, however, the structural energy transition continues. A Carbon Brief/IEA analysis shows that wind and solar have reduced fossil-fuel import dependence in power generation by as much as 60 percentage pointsacross Europe. In transport, biofuels now displace roughly 175 million metric tons of fossil fuels annually, led by the United States, Brazil, Europe, and Indonesia. The U.S. dominates renewable-diesel growth under the LCFS and Inflation Reduction Act, Europe leads in policy integration and biodiesel penetration, while Brazil and Indonesia remain champions in blending intensity.

Together, these renewable pathways form the twin pillars of decarbonization—but today’s market reality reminds traders that the fossil benchmark—ICE gasoil—remains the weakest leg supporting biodiesel and renewable fuels alike. Until petroleum cracks regain balance, both HVO and SAF profitability will remain precarious, even as the world races toward decarbonization.

Editor’s Footnote:The EPA’s January 2026 RIN-reduction rule—cutting D4 credits for imported or foreign-feedstock renewable fuels by 50%—marks a structural inflection point for offshore HVO producers. It effectively ends the arbitrage that sustained Asian exports to U.S. and European markets, forcing a re-regionalization of renewable-fuel production and accelerating the shift toward localized SAF and biodiesel value chains.