Diesel Scarcity Has Not Disappeared, It Has Simply Moved Further Down the Curve

ICE gasoil continued to signal a structurally tight middle distillate market on Monday ahead of the May gasoil expiry tomorrow, although the extreme panic pricing seen into the April expiry has moderated significantly. Front month June gasoil settled near $1,199/mt while December traded around $913/mt, leaving the Jun/Dec backwardation at +$286/mt versus the extraordinary +$490/mt seen during the April expiry cycle. Jul/Dec remains highly backwardated near +$205/mt, confirming that the market continues to manage scarcity through rolling backwardation rather than through any real normalization in physical balances.

That distinction is important. The curve has eased, but only because the stress has migrated further down the forward structure. Nearby diesel remains critically tight globally, especially with inventories continuing to draw into peak summer demand.

Reuters reported last week that global inventories are expected to fall toward 98 days of demand by the end of May from 105 days before the Middle East conflict escalation. TotalEnergies CEO Patrick Pouyanne estimated that global hydrocarbon stock draws have already consumed at least 500 million barrels from inventories, while Rystad Energy estimates that total lost supply could eventually reach between 1.2 and 2.0 billion barrels equivalent if disruptions persist. Reuters also noted that nearly 2 million bpd of refining capacity remains offline in the Middle East while global crude and product inventories continue to draw rapidly.

The fertilizer market is now showing similar symptoms. Kpler data circulating in the market indicates urea exports through Hormuz have nearly collapsed, with roughly twenty urea-laden vessels reportedly stranded inside the Gulf. Weekly exports that had previously fluctuated between roughly 500,000 mt and 800,000 mt have reportedly fallen close to zero. That has significant implications for global agricultural input costs ahead of Northern Hemisphere planting and reinforces how broad the logistical dislocation has become beyond crude oil itself.

The BOGO structure weakened sharply again Monday despite outright diesel strength. July BOGO traded near +$505/mt while September approached +$550/mt as soybean oil failed to keep pace with the continued elevation in gasoil and heating oil values. Bean oil expressed as a percentage of ICE gasoil fell toward 137.6% nearby and 167.5% on Dec26 values. Yet this weakness in BOGO should not necessarily be interpreted as bearish for diesel. Historically, large BOGO collapses during periods of backwardation often reflect delayed pricing transmission from distillates into agricultural feedstocks.

Heating oil continued to confirm the strength in the middle distillate complex. June HO settled above $4.00/gal while the Jun/Dec HO backwardation widened beyond +53cts/gal. RBOB also remained exceptionally firm with Jun/Dec gasoline backwardation above +$1.01/gal. Crude itself remains backwardated with WTI Jun/Dec near +$17.15/bbl and Brent Jun/Dec near +$15.08/bbl, though notably far less inverted than diesel.

The biodiesel market in Northwest Europe remained firm physically despite the correction in nearby gasoil spreads. Market participants remain focused on flat price replacement economics more than futures volatility. European rapeseed oil was indicated near €1,250/mt FOB Dutch mill while nearby RME flat prices remain near $1,700/mt equivalent in ARA based on prevailing premiums over ICE gasoil. Using EUR/USD near 1.18, that implies gross replacement margins for RME producers around $225/mt before processing and financing costs.

UCOME margins remain even more attractive. European UCO values continue to circulate near $1,225/mt CIF ARA while nearby UCOME replacement values remain close to $1,600/mt, implying gross replacement economics near $375/mt. Those margins continue to justify aggressive demand for waste-based feedstocks despite weaker nearby BOGO values.

The market is increasingly behaving as if biodiesel and renewable diesel are now indispensable extensions of the diesel pool rather than discretionary blending components. That helps explain why physical biodiesel premiums in ARA remain historically resilient even as nearby paper spreads normalize.

At the same time, speculative participation across agricultural commodities has become extremely crowded. CFTC positioning data now shows money managers holding a record net long position of roughly 903,000 contracts across U.S. grain and oilseed futures and options. This comes ahead of the expected U.S.-China summit later this week and suggests commodity markets are increasingly trading macro expectations alongside physical fundamentals.

China’s April soybean imports came in near 8.48 million metric tons, below expectations for more than 10 million metric tons but still above historical averages. Strong Brazilian shipments are expected to accelerate into the summer. Meanwhile, China continues to deepen its strategic agricultural exposure in Brazil. COFCO announced plans this week to invest roughly $400 million into expanding its Rondonópolis soybean crushing complex, increasing capacity from roughly 4,500 mt/day to 10,000 mt/day and creating Brazil’s largest soybean crushing facility.

That investment is strategically important for biofuels markets because the project explicitly targets production of soybean oil, meal and biodiesel. It reinforces the longer-term reality that Brazil continues to expand as the primary marginal supplier of soybean products into global markets while the United States increasingly converts its own domestic vegetable oil system into a regulated fuel complex under RFS, LCFS and 45Z incentives.

For now, the broader message from the curve remains relatively simple. The market has succeeded in reducing immediate panic around diesel scarcity, but it has not solved the shortage. It has merely distributed it further along the calendar.