Carbon Spread Compressed as Soybean Oil Builds and EU Tightens Crop Rules

The market continues to trade policy expectations against measurable soybean oil supply growth, tightening European crop policy, and reduced Asian liquidity due to Lunar New Year holidays this week.

D4 RIN Dec26 settled at 1.520, up 1.333 percent on the session. Market discussion centers on a potential 2026 biomass based diesel mandate at or above 5.2 billion gallons and possible reallocation of prior SRE volumes. No formal EPA proposal has been released.

Year round E15 remains part of the compliance equation. Increasing the effective ethanol blend rate from roughly 10 percent toward 12 to 13 percent allows an additional 2 to 3 billion gallons of ethanol to count toward the conventional mandate. On a 100 billion gallon gasoline pool, that increases ethanol absorption from 10 billion gallons to 12 to 13 billion gallons.

ICE gasoil is down 27 dollars per metric ton since February expiry, last 671.50 dollars per metric ton. Front spreads show Mar Apr at plus 8 dollars per metric ton and Mar Jul at plus 29.75, while Jul Dec has weakened 5 percent to plus 14.75. Gasoil chart still looks technically very weak.

On the supply side, soybean oil continues to build.

January NOPA crush reached 221.564 million bushels, above expectations of 218.52 million bushels. U.S. soybean oil stocks rose to 1.9 billion pounds, up 49 percent year on year and the highest since April 2023. That equals approximately 862 thousand metric tons of soybean oil in storage.

In Brazil, FOB Paranaguá soybean oil premiums for April May are quoted between minus 800 and minus 1000. Harvest is 51 percent complete, with total soybean production estimated at 182 to 185 million metric tons. Deep negative soybean oil premiums reflect export pressure during peak harvest flow.

Despite Brazil soybean oil trading at minus 1000, NWE April May pricing shows Dutch origin soyoil at 1075 euros per metric ton and rapeseed oil Feb Apr at 1085 euros per metric ton. Soybean oil is not trading at a material discount in Europe despite weak Brazilian premiums.

European policy adds structural pressure to crop based feedstocks. The European Commission has proposed a phased reduction in eligibility of palm and soybean based biofuels, with thresholds set at 71.4 percent in 2025, 42.8 percent in 2027, and 14.3 percent in 2029, followed by full exclusion in 2030. From 2030, rapeseed oil would be the only cultivated biomass oil eligible for quota compliance.

Within the bio complex, the key indicator remains the UCOME versus RME differential.

RME typically delivers approximately 60 percent GHG savings versus fossil diesel.UCOME typically delivers approximately 89.5 percent GHG savings.

That is a 29.5 percentage point carbon advantage.

The current UCOME minus RME spread is approximately 39 to 41 dollars per metric ton. A 29.5 percentage point GHG differential is therefore priced at roughly 40 dollars per metric ton.

Historically, during periods of tight advanced mandate pressure, UCOME versus RME has traded wider than 40 dollars per metric ton. The present spread suggests the market is not yet pricing acute advanced quota stress.

HVO Class II traded at a premium of 1430 over ICE gasoil, implying a flat price of 2,101.50 dollars per metric ton. Relative to UCOME near 1,417 dollars per metric ton, HVO2 trades roughly 684 dollars per metric ton higher. That differential reflects blending flexibility and molecule characteristics rather than incremental GHG advantage.

Asian markets are largely quiet this week due to Lunar New Year holidays. China, a major marginal buyer of soybeans and soybean oil, is operating at reduced activity. Thin liquidity conditions can delay arbitrage adjustments between Brazil, the U.S., and Europe.

Crush economics remain policy sensitive. On a flat screen basis using heating oil plus D4 at 1.520 versus soybean oil at 57.43 cents per pound, forward biodiesel margins for March through May range from approximately minus 7 to minus 25 cents per gallon, excluding LCFS and Section 45Z. LCFS values are approximately 0.18 to 0.22 dollars per gallon, while 45Z provides up to 1.00 dollar per gallon depending on lifecycle carbon intensity of individual plants and their feedstocks.

The measurable data points remain:

U.S. soybean oil stocks at 1.9 billion pounds, up 49 percent year on year.Brazil soybean oil FOB premiums at minus 800 to minus 1000 during 51 percent harvest completion.ICE gasoil 27 dollars per metric ton lower since expiry.UCOME versus RME at roughly 40 dollars per metric ton despite a 29.5 percentage point GHG gap.EU proposing phased exclusion of palm and soybean based biofuels by 2030.

Until EPA publishes binding 2026 RVO volumes, pricing reflects expectations. Soybean oil supply is expanding while EU policy tightens long term crop eligibility. Reduced Asian liquidity this week may temporarily mask underlying physical imbalances.