Diesel Shock Builds East to West While Biodiesel Margins Reprice Ahead of RVO Decision

U.S. biodiesel margins have sharply repriced higher, with the front-month screen crush now at 1.05 $/gal versus 0.84 $/gal previously, a gain of 0.21 $/gal or 25% in a few sessions. Heating oil is leading, with HOJ26 trading at 4.2650, up 0.2090 or 5.15% on the day. At the same time, D4 RINs are trading at 1.625 $/RIN, which translates into about 2.44 $/gal of support for biodiesel on a 1.5 RIN basis. Margins are now supported by both the petroleum leg and the credit leg, with prompt renewable diesel margins in some cases exceeding 2.00 $/gal.

The physical diesel market remains the anchor. Asian 10ppm gasoil cash differentials are at 53.34 $/bbl, while outright prices in Singapore remain elevated at 219.54 $/bbl. Refining margins are still around 55.5 $/bbl. These levels confirm a tight prompt system that is already rationing demand. Vietnam Airlines is cutting 23 flights per week due to jet shortages, and freight rerouting via the Cape of Good Hope is extending voyage times and tightening effective supply. If disruption through Hormuz persists through April 15, this tightness will migrate west into Europe and then the U.S.

In Northwest Europe, the ARAG window confirmed the strength. FAME traded between 165 and 215 $/mt over ICE gasoil, with most volume between 170 and 185. With front-month gasoil around 1,285 $/mt, this implies flat prices of 1,450 to 1,470 $/mt, with highs near 1,500 $/mt. UCOME traded between 312 and 320 $/mt over ICE, implying flat prices around 1,600 to 1,605 $/mt. RME continues to hold a premium structure relative to FAME0, trading in the 1,470 to 1,520 $/mt flat price range. With April rapeseed oil at 1,100 €/mt, equivalent to 1,281.5 $/mt, this implies a gross replacement margin of roughly 188 to 238 $/mt, with a midpoint near 218 $/mt. At the same time, soybean oil in NWE continues to trade at a premium of 25 to 35 €/mt over rapeseed oil, reinforcing RME’s relative competitiveness on a feedstock basis. HVO Class II printed at 1,235 to 1,236 $/mt flat. Despite ICE declining by about 3 $/mt on the day, premiums held firm across the board, confirming that backwardation in gasoil, still near 300 $/mt, continues to support prompt biodiesel pricing.

The U.S. system is not capacity constrained, it is feedstock and utilization constrained. Installed capacity exceeds 7.0 billion gallons, with renewable diesel around 5.0 to 5.1 billion gallons and biodiesel near 2.0 billion gallons. However, realistic 2026 domestic supply is closer to 4.8 billion gallons, requiring roughly 38 billion pounds of feedstock, which is broadly in line with total USMCA availability. Imports are declining, down 16% in 2025, and are expected to fall further under 45Z restrictions and tariffs. Waste oils remain capped, with UCO imports around 4.4 billion pounds in 2025 and limited growth potential. This leaves soybean oil as the marginal feedstock, with about 30.8 billion pounds of capacity and only modest growth because it is constrained by soybean oil high Carbon Intensity. The system has very little buffer.

The stress is now spreading into agriculture. Urea prices in parts of Asia are around 600 $/mt. India’s urea stocks are 6.15 million tons versus expected consumption of 19.3 million tons, a coverage ratio of 0.32, while DAP coverage is 0.55. Malaysia is indicating potential yield losses of 15% to 20%. These levels imply reduced fertilizer application and lower crop yields.

This creates a policy response risk. India is already reducing vegetable oil imports to about 1.1 million tons per month from 1.36 million tons. As fertilizer tightness feeds into crop risk, export restrictions on agricultural products become increasingly likely across Asia. China has already taken defensive steps in energy and fertilizers, and similar moves in food markets would tighten global supply further.

Vegetable oil markets are holding but not leading. CME soybean oil is at 65.7 c/lb or about 1,448 $/mt, up 31% over three months but only marginally higher on the day. China is firm, with Dalian soyoil up 1.65% and palm olein up 2.22%, while physical demand in India remains cautious.

The rest of the barrel confirms the imbalance. Fuel oil has weakened, with VLSFO down from 954 $/mt to 850 $/mt and HSFO from 783 $/mt to 688 $/mt, declines of roughly 10% to 12%. Naphtha has corrected by about 100 $/mt to 1,184 $/mt, although margins remain elevated. This remains a distillate-driven market.

The market is now focused on the RVO decision expected before the end of the week. A 2026 biomass-based diesel mandate around 7.1 billion RINs translates into roughly 4.2 to 4.8 billion physical gallons depending on the renewable diesel versus biodiesel mix, or approximately 12.8 to 13.5 million metric tons. This aligns closely with realistic U.S. production capacity at full utilization.

At the same time, the market is trading around expectations that EPA could adjust treatment of foreign producers under the RFS framework, potentially allowing greater participation in exchange for clarity on SRE reallocation. Details remain unclear and no formal guidance has been released, but this possibility is influencing positioning ahead of the announcement.

The key shift is that multiple systems are tightening at once. Diesel premiums above 53 $/bbl, biodiesel margins above 1.00 $/gal, D4 RINs at 1.625, fertilizer prices around 600 $/mt, and potential yield losses of up to 20% are all pointing in the same direction.

My view is that the market is underpricing the linkage between energy and agriculture. If Hormuz disruption persists into April and RVOs are confirmed near 7 billion RINs, the system will be forced to reprice across feedstocks, RINs and flat price simultaneously to balance tightening conditions across both energy and agriculture.