Diesel Backwardation Cracks Before Thanksgiving as Policy Signals Dim and China’s Buying Turns deeply Political

The short Thanksgiving week delivered a dramatic shift in distillates. The ICE gasoil Dec/Apr backwardation—nearly +$100/mt at its 18 November peak—has collapsed to +$36.25/mt today, a structural break that resets front-end sentiment across diesel, HVO, and SAF. Asian cash markets confirm the same adjustment: Singapore 10ppm gasoil diffs slipped again to +$1.90/bbl, refining margins softened to $23/bbl, and traders are weighing diversions eastward as freight costs climb. The prompt tightness that supported the October–November rally has faded quickly, and with holiday liquidity thinning, the curve is normalizing rather than signaling scarcity.

European biodiesel markets were quiet but still instructive. RME traded at $750/mt, giving a flat near $1,416/mt against gasoil at $666/mt. UCOME fixed at $790/mt, implying a flat near $1,456/mt. The RME/FAME0 spread printed $147/mt, and UCOME/FAME0 widened to $187/mt. HVO Class II held a $1,395/mt premium, translating to a flat price of $2,509.96/mt, modestly softer and in line with the collapsing diesel backwardation. The premium structure that had supported HVO and SAF is showing visible strain.

U.S. policy signals added another layer of disappointment. D4 RINs weakened sharply, undercutting expectations from this week’s Washington conversations: D4 Dec25 slipped to 1.062–1.063, and Dec26 eased to 1.147. The biodiesel margin proxy also deteriorated, indicating the market was hoping for clearer direction on 2026 rules—particularly imported feedstock penalties and co-processing eligibility—but instead received ambiguity. With diesel cracks dropping at the same moment, U.S. biodiesel economics enter year-end under renewed pressure.

Regulatory uncertainty in California compounded this tone. Martinez Renewables has filed 17 different LCFS pathway applications across renewable diesel, renewable naphtha, and renewable propane, covering soybean oil, canola oil, DCO, animal fats, and UCO. Such blanket filing reflects how unsettled producers are about California’s coming CI revisions. When a major refinery must file nearly twenty pathways to ensure coverage, it confirms the sector is operating without a stable regulatory anchor.

Vegoils traded steadier but still lean heavy. Palm oil futures rebounded after a steep four-day decline, with February settling around 4,040 MYR/mt, supported by Chicago soyoil and Dalian. Yet fundamentals remain soft: Malaysian production for November 1–20 increased 3.24%, while exports for November 1–25 declined 16% to 19%, setting up a likely stock build. Chicago soyoil’s Dec/May spread tightened from 1.32 c/lb to 1.02 c/lb, showing some curve stabilization even as crude oil remains weak.

A deeper structural concern is emerging in the soybean complex. China’s state-driven buying of U.S. soybeans is being executed at negative crush margins, meaning the flows are political, not commercial. Private crushers have stepped away; state-owned entities dominate. This is double trouble: it distorts CFR values and arbitrage signals, and it is inherently unsustainable. To offset these losses, China increasingly has only one rational outlet—exporting soybean oil. That would represent a fundamental shift: China, traditionally an importer of vegoils, could become a net exporter of soyoil during periods of political procurement.

Such a shift would have profound implications for Q1. If China starts exporting soyoil, the resulting displacement would land hardest on Brazil just as the early South American harvest begins. Brazil’s crushers depend on strong domestic and export demand for soyoil to support bean premiums. Chinese soyoil exports into Asia or the Middle East would crowd out Brazilian supply, flatten basis levels, erode crush margins, and pressure bean pricing during harvest. The global vegoil balance would flip quickly, with Brazil absorbing the adjustment.

Brazil’s biodiesel mandate becomes central in this scenario. The country is currently at B15, raised from B14 on August 1, 2025. Although B16 had been proposed for March 2026, officials have already indicated that reaching B16 on time may be difficult due to logistical and technical constraints. Each 1-point increase in the mandate absorbs roughly 500,000 tonnes of biodiesel, meaning that if China’s soyoil exports accelerate, Brazil would need to go far beyond B16—toward B19 or even B20—to absorb the excess. That equates to an additional 2–2.5 million tonnes of biodiesel demand, the only lever large enough to stabilize the crush, prevent soyoil stocks from ballooning, and protect bean premiums during the early harvest. In effect, China’s political procurement may end up exporting its imbalance directly into Brazil, forcing Brasília to consider a historically large mandate hike.

Geopolitics remain contradictory. Chinese state media described the Trump–Xi call as constructive, emphasizing stability and cooperation, but underscored China’s non-negotiable position on Taiwan—an explicit tension point. Meanwhile, U.S. Treasury Secretary Bessent asserted that China’s soybean buying is “right on schedule,” citing a commitment to purchase 87.5 million tons over 3.5 years. USDA weekly export data still show no China reported for the latest week, reinforcing that much of this buying occurs outside typical commercial channels. Fake economics.

As the world enters a brief pause—Thanksgiving for some, a welcome slowdown for others—I want to wish everyone a moment of calm after a year that has offered anything but. Whether or not you celebrate the holiday, I hope you get at least one good meal, one good laugh, and a few hours when the markets kindly refuse to surprise us. Enjoy the slower days ahead, wherever you are, and may the final weeks of 2025 bring more clarity and fewer plot twists than the months behind us.