Diesel Rally Collides With Structural SAF Shift – China Takes More EU Market Share

ICE gasoil roared back with a one-day surge of more than 4 percent, easily clearing a one standard deviation move and reversing two weeks of weakness in a single session as EU clears a 19th Russian Sanctions package. The diesel-led rally tightened forward spreads, firmed refining cracks, and triggered mechanical compression across biodiesel and renewable diesel economics. The tone shift was aggressive, but it was entirely energy-led, not driven by any recovery in feedstock fundamentals.

December BOGO collapsed to +444 from levels above +480 earlier in the week as bean oil again failed to follow diesel. BOPO held around +36, and BOHO compressed 7–8 percent on the day as heating oil outperformed bean oil. The spread action improved screen biodiesel margins marginally, but sentiment remains capped by weak bio credit support. D4 RINs slipped again, with December 2025 indicated near $1.035, reflecting persistent regulatory uncertainty and limited blending appetite going into year-end.

The soy oil complex stayed heavy. Futures weakened further and the carry widened again, with Dec/Mar and Dec/May structure now exceeding –1.10. The widening carry confirms continued storage pressure and weak nearby pull from biodiesel and RD offtake. Screen crush margins remain stressed, and until either export demand or domestic energy pull improves, bean oil will continue to act as a ceiling on biodiesel margins even on strong diesel days like today.

Physical Europe tracked the diesel repricing but did not experience a structural shift in demand. In the ARAG window, RME traded near +$755/mt over ICE gasoil, FAME 0 at +$705/mt, and UCOME around +$849/mt, narrowing the UCOME/FAME spread to roughly $144/mt. HVO Class 2 softened to $2,609/mt, trimming the HVO–SAF premium to under $80/mt. Interest remained selective and contract-driven, not discretionary. The move was a recalibration to higher flat price levels, not a signal of stronger offtake.

Policy tension in Europe under RED III continues. Brussels remains vocal about tightening sustainability enforcement, but no one is willing to confront the central distortion in the system: double counting. Waste-based biodiesel such as UCOME and Palm effluent based biodiesel continues to benefit from artificially inflated demand because double counting remains untouched, even as mass balance and origin inconsistencies are now openly acknowledged by regulators. Germany’s proposed tightening of BioSt-NachV and Biokraft-NachV under BLE supervision focuses on documentation and traceability, yet it leaves double counting fully intact. That contradiction—stricter paperwork while preserving the distortion—keeps UCOME artificially supported over FAME and pushes waste oil overconsumption without achieving proportional carbon benefit. As a result, traders are now explicitly pricing higher regulatory risk into forward UCOME differentials and HEFA feedstock values.

The most strategically important development remains SAF. China is not emerging in SAF—it is already embedded in Europe’s supply chain. According to the latest EASA ReFuelEU Aviation Technical Report, 38 percent of the feedstock used for SAF supplied in the EU in 2024 originated from China and 69 percent from outside the EU. That means China already holds the largest single share of EU SAF feedstock supply before the SAF mandate has even begun to scale. At the same time, Europe left a regulatory back door wide open: SAF was excluded from EU countervailing duties imposed on Chinese UCOME and HVO Class 2. That exemption now gives Chinese refiners a clean corridor to ship HEFA-SAF into Europe using the same UCO feedstock pathway that Europe claims it wants to regulate. With more than 30 Chinese SAF projects announced, two already operational, and export quotas growing, China is quietly capturing EU market share in aviation fuels just as ReFuelEU mandates begin to bite. The EU risks repeating its dependency cycle—first solar, then batteries, now SAF.

Geopolitics remains a background but rising risk. Following U.S. Section 301 actions targeting China’s maritime and industrial subsidies, Beijing has imposed retaliatory port fees on U.S.-linked vessels. While no tariffs have yet been applied directly to biofuels, vegetable oils, or SAF, the escalation adds another freight risk layer to Asian flows moving into Europe. Markets are beginning to price this into forward freight assumptions, particularly for long-haul waste oil movements.

Bottom line: today’s move was a diesel squeeze as EU announces a 19th sanctions package against Russia, not a biodiesel recovery. Spreads tightened, but credits remained soft, bean oil stayed heavy, and policy risk in Europe is quietly rising. The screen shows relief; the structure still signals caution.