Diesel Backwardation Returns — But the Real Story Is Soymeal

Backwardation snapped back into ICE gasoil today with Dec/Apr blowing out to +30.75 and Dec/Jul trading near +43.50, almost up two standard deviations on the front of the curve. Yet Northwest Europe biodiesel values stayed impressively stable. In ARAG, FAME 0 RED held a tight 1,294–1,299 $/mt range with the month-to-date at 1,297.33 $/mt, while RME stayed locked in at 1,434–1,439 $/mt and a month-to-date of 1,436.33 $/mt. Premiums versus gasoil widened simply because gasoil rallied harder: FAME RED hovered around 624–639 over the GO swap and RME RED around 761–784. UCOME traded slightly softer at 1,452–1,467 $/mt and HVO Class 2 weakened more visibly to 2,458–2,589 $/mt as the escalated swap slipped again from 1,858 to 1,748 $/m³. Northwest European feedstocks were quiet to softer, with soybean oil Dutch origin around 1,105 €/mt for January and 1,095 €/mt for February, rapeseed oil drifting to 1,069 €/mt for Feb–Apr and 1,059 €/mt for May–Jul, and sunflower oil around 1,350 €/mt. EUR/USD firmed toward 1.1670, nudging replacement values higher despite unchanged euro feedstock prices. The overall tone of the ARAG window was one of calm stability, with biodiesel values essentially pinned to the gasoil curve rather than physical tightness.

Across the Atlantic, the U.S. market continued to show little momentum as renewable feedstock throughput stayed below seasonal expectations. Soybean oil usage for both biodiesel and renewable diesel has not recovered, and total fats and oil consumption remains soft. BOPO held firm around +137 for March, reinforcing the U.S. island effect, while BOGO in Europe eased toward +485. U.S. macro indicators, including weaker employment trends, pressured the dollar lower and increased expectations of a rate cut, but these shifts did nothing to lift biodiesel or renewable diesel margins under current feedstock economics. Grain markets remained cautious ahead of upcoming supply revisions, with many expecting downward adjustments to U.S. export projections.

D4 RINs continued to drift aimlessly, effectively swimming without a target. The forward curve showed little conviction, with the outer-year contract slipping toward 1.166 and the prompt month struggling to attract bids. Without updated volume obligations, without clarity on exemptions, and without any regulatory guidance to anchor expectations, RIN trading has become directionless and driven mostly by passive flows rather than structured compliance demand.

A deeper structural issue is emerging for the U.S.: global market share in soybeans, meal, and oil is eroding. Argentina has resumed soymeal shipments into China for the first time in years, Russia has begun shipping soymeal into Turkey, and China is exporting soy oil to India even while committing to purchase U.S. soybeans. These trade patterns confirm a global diversification away from U.S. meal and oil. The weekly oilshare chart reinforces the trend, rising back into the upper 40s and signaling stronger relative value in oil than meal. A more assertive U.S. biodiesel and renewable diesel program—one that expands oilshare despite the current 45Z CI constraints—would strengthen domestic soybean oil demand and help secure competitiveness for U.S. soymeal. Without a stronger internal pull from biofuels, U.S. crushers face the risk of shrinking export outlets for meal while foreign suppliers increasingly dominate product markets.

South America maintained its role as the price setter for global vegetable oils. Brazil’s soybean export commitments climbed past 108 MMT, nearly matching full-year projections and sitting near the top of the five-year range. Paranaguá new-crop soyoil remained extremely weak around –580, matching forward indications near –490 to –570 for spring months. The discount is required to clear the enormous volumes Brazil continues to push into the system. Argentina’s renewed soymeal access to China adds further competitive pressure on U.S. meal, and Chinese domestic markets eased despite the new channel, reflecting heavy local supplies. China still must load well over 200 U.S. soybean vessels to meet its commitments, but logistical constraints and ample Brazilian supply leave little room for market optimism. Weather in Brazil and Argentina remains favorable and continues to cap any rallies in beans or vegetable oils.

Asia showed continued structural evolution. The exportability of Southeast Asian PME continues to diminish as domestic mandates pull increasing volumes inward, leaving international PME benchmarks with diminishing relevance. Malaysia expects higher crude palm oil production next year, with recent monthly output among the strongest in a decade and stocks above 2.45 MMT. Palm oil’s discount to soft oils has widened to historically extreme levels—around $120 below sunflower oil, $48 below soybean oil, and $34 below rapeseed oil—likely encouraging buying ahead of the unusual overlap of Chinese New Year and Ramadan even as production enters its seasonal low. POGO’s persistent flatness at biodiesel level of +375 suggests the market does not expect discretionary blending beyond mandated levels.

Macro developments added notable context. China removed export incentives on aluminum, adding a substantial cost burden to outbound shipments and quickly reshaping trade flows. This reflects a broader industrial strategy in which China reduces low-margin exports and focuses on domestic value creation, a pattern increasingly visible in vegetable oils, used cooking oil, biodiesel, and soymeal flows. Meanwhile, the Russian ruble strengthened following political comments from the U.S. suggesting severe tariffs unless a peace agreement is reached within 50 days. The ruble does not strengthen on sanction risk; it strengthens when markets believe sanctions will not materialize. The reaction strongly implies that negotiations are live and credible. Distillate markets appear attuned to this, with backwardation collapsing whenever peace chatter surfaces and snapping back when headlines fade, exactly as seen today.

North America contributed another structural shift as a refinery in Western Canada secured long-term credit support that effectively covers about half the renewable feedstock cost for FCC coprocessing from mid-2026 through 2028 at up to 300 bbl/day, complementing earlier support for an additional 300 bbl/day in a hydrotreater. The combined 600 bbl/day renewable gasoline and diesel output achieves meaningful CO₂ reductions without major capital investment and demonstrates how coprocessing can scale rapidly if similar frameworks are implemented elsewhere. This structure, if adopted by other low-carbon fuel jurisdictions, could materially increase low-CI feedstock demand between 2026 and 2028.

The global biodiesel landscape begins December with marked regional divergence: Northwest Europe locked into a tight, distillate-anchored pricing band; the U.S. structurally tight in diesel yet underutilized in feedstocks and losing global share in soymeal and oil; South America oversupplied and aggressively priced; Asia increasingly inward-oriented under rising mandates; China recalibrating export and procurement strategies; and North America unlocking new coprocessing pathways through regulatory design. Diesel remains the dominant price anchor, but the deeper forces at play are geopolitical realignment, industrial policy shifts, and evolving global supply chains—factors that overshadow short-term fundamentals and make biodiesel markets increasingly sensitive to macro signals rather than physical flows.