Diesel Structure Softens Further as Markets Quietly Price Negotiations, Not Fundamentals

Gasoil weakness continued across the curve today, with spreads slipping again and margins printing close to two-month lows. The market is trading as if something is quietly shifting in the geopolitical backdrop: the steady strengthening of the ruble, with USDRUB now near 77.6 and at its strongest point in a month, remains the cleanest real-time proxy for progress in back-channel Russia negotiations despite the media blackout. The distillate complex is behaving accordingly—Asian gasoil timespreads hit fresh three-month lows, regrade widened again, and outright cracks softened, confirming a structural loosening rather than any shortage dynamic. This view is reinforced by new reports showing Russia’s diesel exports rising 3% in November despite sanctions and infrastructure damage, undermining any narrative of tight physical supply.

The vegetable oil complex finally corrected after its recent surge, exactly as anticipated yesterday, with bean oil giving back premium and pulling BOGO down to +486. Global crush growth remains the dominant structural driver, with CoBank data showing world crush expanding more than 10% into 2025/26 as China, the U.S., Brazil, and Argentina all accelerate processing. These fundamentals continue to argue for a heavy soyoil balance in 2026 unless policy absorption increases materially. China’s U.S. soybean purchases have become more prominent over the past 48 hours, with six vessels lining up through mid-December and a seventh already en route, plus two sorghum cargoes. Treasury Secretary Bessent reiterated today that China is on track to complete the 12 MMT commitment by the end of February. But the flows remain uneconomic and overtly political, and at this cadence, they do not materially change compliance math. To meet the full obligation, China would still need to load well over 200 vessels, and the U.S. simply does not have the logistical bandwidth: the upper Mississippi is shut for the season, and the lower Mississippi remains constrained by drought-driven low water levels. Draft and tow-size restrictions are forcing lighter loads, barge freight has surged, and southbound grain volumes have fallen nearly 80% from late-summer norms. Without significant rainfall relief, raising export cadence materially from here will be extremely difficult.

Northwest Europe vegetable oils came off in tandem with the global correction, and the forward curve flattened across soy, rapeseed, and sunflower oils. Dutch soyoil for February eased to €1,105/t while forward months from March to October held flat at €1,085/t. German-origin soyoil saw deeper declines, with January down €5/t and the May–August strip marked €15–20/t lower. Rapeseed oil weakened in parallel, with Dutch-origin January and February shedding €5–10/t and German-origin mid-curve falling €15–20/t. Sunflower oil FOB North European ports slipped to $1,360/t for Jan–Mar ’26 and held steady further out. The tone across the complex mirrors the BOGO correction: softer flat prices, flatter forward structure, and a market increasingly comfortable giving back risk premium as supply signals remain abundant heading into 2026.

In Northwest Europe’s biodiesel market, ARAG activity remained healthy, though more measured than yesterday’s wave of selling. RME traded in the mid +760s to high +780s range over ICE gasoil, leaving outright values steady around $1,430/t even as diesel structure weakens. FAME 0 held near the $1,295–1,305/t zone, while UCOME continued to face pressure from subdued UCO feedstock values and a cautious physical buyer base. FOB ARA offers in the high-700s to low-800s persisted, with outright values around $1,455/t and sentiment still heavy after last week’s selloff. HVO Class II premiums eased further sitting below average of the month, sitting at 2470$/mt as buyers see no urgency to chase December barrels while gasoil cracks deteriorate. In the marine fuels space, a forward-looking signal emerged from Oceania with a new bunker vessel in Auckland capable of supplying both biodiesel and methanol, underscoring the dual-fuel direction emerging in port infrastructure.

In the United States, D4 RINs extended their aggressive repricing trend, with 2026 RINs now trading at 1.18, up from 1.045 on October 31. Regulatory opacity remains the defining driver: the EPA continues to miss major deadlines, and USDA canceled several ERS farm income and commodity reports due to the federal funding lapse, stripping away critical visibility tools just as 2026 compliance planning should accelerate. This erosion of transparency naturally tightens the RINs complex, and traders are increasingly hedging this uncertainty through forward vintages. Feedstocks themselves remained steady, with no substantial movement in DCO, tallow, or choice white grease. The modest correction in bean oil cooled sentiment somewhat, but not enough to change the broader outlook.

South America remains anchored in negative crush economics and political flows. Argentine soyoil for March loadings continues to trade around a 4.2¢/lb discount, reflecting unsustainable crusher margins. Brazil’s new-crop Paranaguá soyoil FOB remains near –580 with room to weaken further as crush pace accelerates and Chinese political buying fails to deliver real commercial uplift. What the market is still underpricing is the downstream consequence of China’s U.S. soybean purchase program: if China is forced to run more beans than it can domestically consume, the likely outlet becomes increased soyoil exports rather than domestic absorption. Outside of today’s softer South American premiums, this expectation has barely been incorporated into price. A sustained Chinese oil export program would be profoundly bearish for South America, where FOB values would need to fall sharply to compete, and it would also pressure the broader vegoil complex by forcing palm oil to reprice lower to defend its share. Today’s softness in South American FOBs may simply be the first step in a deeper repricing cycle.

Across all markets today, the common thread is unmistakable: participants are not trading fundamentals—they are pricing political barrels and geopolitical recalibration. Diesel cracks fall while Russian exports rise; soyoil corrects while China buys politically; RINs tighten as visibility shrinks; and the ruble strengthens as quiet diplomacy advances. With BOGO retreating, ARAG showing fatigue, and distillate structure softening globally, the market enters mid-week in a stance of consolidation and caution. Absent a fresh catalyst in diesel or a policy surprise in biofuels, price action will continue to reflect geopolitics far more than immediate physical tension.