Distillate Frenzy: Gasoil Surges and Biodiesel Margins Ignite

ICE gasoil has exploded higher this week, with the July/September spread punching through $25.50/mt and the heat crack surging to $31.64/bbl — a clear signal of acute spot distillate tightness, likely driven by geopolitical risk and refinery issues in the US Gulf and Middle East. While ICE gasoil touched $754/mt intraday, it settled near $734/mt. These dislocations are reverberating across biodiesel margins. Despite relatively unchanged premiums, the strength in gasoil has lifted gross margins sharply, particularly for RME, which closed at $1,444/mt flat, yielding a $179/mt margin.

July/Sep Gasoil Spread

Heat Crack Margin in $/Brl

In ARAG, FAME 0 traded steadily at +660/mt over ICE, closing at $1,394/mt flat — translating to a slimmer $54/mt margin. The premium structure reflects the growing spread between soybean oil and rapeseed oil in Europe, with bean oil carrying a 55–65 €/mt premium. This pressure on soft oils is playing out in the physical market, as Euronext rapeseed futures and FOB Rotterdam prices rise on concerns over Ukrainian export duties on rapeseed and soy, despite strong EU crop expectations.

Brazilian and Argentine soybean oil premiums continue their collapse, with Paranaguá basis now bid at -650 to -880 for July and August, and Q4 bids nearing -1000 under CBOT. Yet the practical impact on EU imports is muted due to SME's limited access: it faces a quota regime and minimum import price (MIP) barrier into Europe. The spread between FAME and UCOME remains insignificant at $86/mt, as UCOME trades at $1,480/mt flat with spot deals seen at $740–755/mt. Meanwhile, the announcement of Ukraine’s intention to impose export duties on rapeseed and soybeans has caught the market off guard, given that the EU currently grants Ukraine near-total duty-free access for agricultural exports. This adds a layer of uncertainty at a time when EU crushers are already facing a tight rapeseed oil market.

Meanwhile, SRE (Small Refinery Exemption) risk continues to overhang the US biofuel market. On June 18, the Supreme Court ruled that only the DC Circuit can review EPA SRE denials, pushing resolution back to the EPA — which is still sitting on a substantial backlog. This has weighed on sentiment and likely explains why D4 RINs softened again to $1.17. Though the new RVO mandates start in 2026, the SRE ruling could influence RIN market fundamentals as early as 2025.

Soybean oil spreads confirm the market’s caution. The July/December soy oil spread is now showing a -0.63¢/lb carry, suggesting that traders do not expect near-term tightness and perhaps easing fundamentals later in the year. It maybe also a reflection of forward uncertainty on EPA rulings and tax credit implementations like 45Z. While forward South American offers are weakening, actual availability into Europe remains bottlenecked by trade barriers, keeping EU biodiesel margins relatively firm for now.