Cracks Explode Telling Market Has a Supply Problem

Today’s tape moved through products, not crude. July WTI gained 2.44% to $70.92/b and August Brent gained 1.72% to $73.23/b, while July gasoil rallied $28.75/mt to $910.00/mt and July heating oil rose 13.02 c/gal to $3.3384/gal. The heat crack reached $69.36/b and the 3:2:1 crack reached $61.61/b - remember this is when Brent is $73/brl. Market telling us we have a serious supply problem. These numbers put biodiesel and RD back inside the distillate margin story. July gasoil holds $110.25/mt over December, while July/August stands at $15.50/mt and July/September at $40.25/mt, so the market is paying for nearby barrels despite the MOU narrative of larger supplies being available.

Strait of Hormuz traffic still does not confirm normalization. The latest 24-hour count shows only 13 commercial crossings, split 6 east-to-west and 7 west-to-east, with Brent near $72.77/b. Before the late-February break, daily crossings were generally above 100. Commodity-vessel data also shows June transits split between Iranian, Omani, IMO and dark AIS routes, which is not a clean logistics regime. Iraq’s oil stress adds another layer: May output was reported near 1.48 million b/d versus almost 4.2 million b/d in February, with no large-scale alternative export route outside Hormuz. This is why I still struggle with the idea we return to Feb. 27 volumes on a headline.

US biofuels kept the policy floor under the screen. Dec D4 RINs traded near $2.45, which values a 1.5x biodiesel RIN near 367.5 c/gal and a 1.6x RD RIN near 392.0 c/gal. July RBOB at $3.0622/gal versus ethanol at $1.9000/gal widened the RBOB/ethanol spread by 10.51 c/gal to $1.1622/gal, so the nested RIN structure also matters. July soybean oil fell 1.75 c/lb to 69.55 c/lb and the July/December spread fell 1.33 c/lb to 2.88 c/lb, yet the conventional biodiesel screen jumped 26.29 c/gal to $1.2237/gal and the RD screen jumped 27.89 c/gal to $0.7727/gal. The policy shift is also becoming more CI-specific: 45Z has no grandfathering, so qualification depends on lifecycle emissions at production. California is also moving on SAF, with AB 839 set for a June 30 hearing and a proposal for expedited CEQA review on up to three SAF projects through a 270-day judicial process. These are not prompt barrels, but they matter for project economics and feedstock competition.

Europe remains the strongest physical argument for renewable distillates. European ULSD cracks rose more than $7/b last week to $47.35/b, ARA diesel/gasoil stocks fell 2% and sit near 10-month lows, HOGO reached $0.34/gal, and Kaub loading near 35% raises inland German logistics risk during the heat wave. In ARAG paper, July RME sat near $1,488/mt, FAME 0 near $1,433/mt, UCOME near $1,588/mt and HVO class II near $2,668/mt. The AOM barge window traded FAME at 570 and UCOME at 715, leaving a 145 spread, while paper showed 27 kt of RME, 9 kt of UCOME and 18 kt of HVO IV/II. UCOME Q3 traded 690, down 15 from Friday, so paper has lagged the distillate breakout even as the physical bid remains active.

Global vegoil still argues against chasing feedstock higher. BOPO July fell $38.58/mt to $413.80/mt, while BOGO July fell $65.79/mt to $624.84/mt and bean oil as a share of gasoil fell 5.54% to 1.6849. Palm recovered from last week’s lows, with July USD Malaysian palm around $1,135-1,139/mt, while India still saw July CFR WCI CPO near $1,236.75-1,246.75/mt and July CFR WCI soybean oil near $1,249-1,259/mt. Brazil remains complicated: Paranaguá soybean oil paper was still bid around -1,720 to -1,510 for August and -1,550 to -1,370 for OND, while Brazil-

China soybean freight shows ocean freight up 42.32% year-on-year and inland cost up 9.96%, leaving China paying almost $40/mt more for Brazilian beans than last year. EU soybean production is too small to change the balance, with 2026 output forecast just under 2.8 mmt and Italy down to 899 kt from 1.060 mmt. The positioning overlay adds fuel to the move: managed money exposure across 25 major commodities has fallen 73% in five weeks to 478,000 contracts, while agriculture has moved from more than 1 million contracts net long last month to 49,000 net short. With funds having reduced exposure as cracks break out, the next move in biodiesel/RD will come from products and policy first, and feedstock second. I still expect BOGO to adjust down abruptly as physical market catches up to reality.