Distillate Markets Liquidate On “Peace Headlines” While Biodiesel Fundamentals Continue To Tighten

ICE gasoil and global distillate markets suffered another round of heavy liquidation today as trading systems continued reacting to headlines suggesting a possible temporary framework agreement with Iran. Yet the underlying physical structure of the middle distillate market remains historically tight. ICE gasoil May settled near $1,171/mt, still up 74.6% over 3 months, while May/Dec backwardation remains near +$283.75/mt and Jul/Dec still trades at an extraordinary +$191.75/mt. Singapore 10ppm diesel closed near $149/bbl while Singapore jet fuel also remains near $149/bbl despite both markets correcting more than 5% on the session. US heating oil continues to signal structural scarcity as Jul/Dec backwardation still holds near +47 c/gal while Jun/Sep remains near +38 c/gal. These numbers do not describe a well supplied market.

What remains remarkable is how resilient biodiesel and renewable fuels continue to behave relative to outright petroleum liquidation. Front BOGO rebounded to $506/mt today after the recent collapse while Q4 BOGO still trades near $645/mt. Bean oil as a percentage of ICE gasoil remains historically depressed at only 143% nearby versus 173% deferred, reinforcing again that diesel remains the primary pricing engine globally. Conventional biodiesel economics continue to materially outperform renewable diesel economics before incentives. Conventional biodiesel screen crush margins improved toward +59 c/gal nearby while RD crush margins remain near only +5 c/gal before 45Z. This divergence is becoming increasingly important because it explains why physical blending demand continues shifting back toward conventional biodiesel wherever technically feasible.

BOGO

European physical markets reflected that same dynamic today. AOM window activity showed multiple RME trades between 355 and 370 over ICE gasoil while UCOME traded between 485 and 495 over gasoil. HVO Class II traded between 1375 and 1380 over gasoil while SAF traded around 1295 over gasoil. FAME Jun paper traded near +400 over ICE gasoil, Q4 UCOME traded around +600 and HVO II Q3 traded around +1840. Physical values remain extremely elevated despite today’s liquidation in outright energy. Spot indications now place FAME 0 near $1,436/mt flat price, RME near $1,462/mt, UCOME near $1,581/mt and HVO Class 2 near $2,980/mt while SAF remains near $2,930/mt. European feedstocks softened modestly with Dutch origin soyoil near €1,150/mt FOB and Dutch rapeseed oil still elevated near €1,270/mt FOB.

The most important structural development today may come from Germany. Newly published 2025 data confirms that biodiesel, not HVO, carried most of the compliance burden last year. Biodiesel blending volumes increased roughly 12% YoY while HVO blending volumes declined roughly 17% YoY as obligated parties found conventional biodiesel more economical within the technical B7 blend wall. Total biodiesel blending volumes approached 2.2 million mt while HVO blending volumes fell toward only 118,900 mt. At the same time, standalone HVO100 sales increased to about 132,700 mt while B100 remained minor at around 6,015 mt. Germany’s average biodiesel blending ratio fluctuated mostly between 6.2% and 8.6% during 2025. The numbers confirm that HVO is increasingly becoming a premium standalone road fuel while conventional biodiesel continues to carry the core compliance burden. Could this be a sign of things to come for US as RD margin are significantly lower than conventional Biodiesel because of GHG calculations.

Malaysia meanwhile appears to be moving aggressively in the opposite direction from Europe. The government confirmed that B15 biodiesel rollout will begin June 1 with explicit discussions already underway regarding future progression toward B20 and possibly B50 within 2 to 3 years. This comes as MPOA estimated April palm production increased 18.17% month-on-month nationally, including Sabah +15.71% and Sarawak +21.92%. Yet Malaysia’s acceleration toward higher domestic biodiesel mandates likely reflects concern over longer-term structural palm demand rather than short-term oversupply. Europe continues reducing dependence on palm-based biofuels while RED III pressure continues increasing. Domestic biodiesel expansion therefore becomes both an energy security strategy and a mechanism to defend long-term domestic palm demand.

Brazil, by contrast, appears far less interested in aggressively expanding biodiesel mandates further despite being one of the world’s largest soybean oil producers. Instead, Brazil is increasingly exploiting the Hormuz crisis by redirecting rising crude exports toward China. Petrobras crude production reportedly rose roughly 16% YoY while China’s share of Petrobras exports surged from roughly 33% to 62% YoY. China imported a record 1.6 million bpd of Brazilian crude during March as Atlantic Basin barrels increasingly replace disrupted Middle Eastern flows. This divergence between Malaysia and Brazil is important. Malaysia appears focused on internalizing more energy value domestically through biodiesel expansion while Brazil currently prioritizes hard currency inflows through crude exports into Asia’s growing replacement barrel market.

Freight continues to remain one of the hidden inflationary components underpinning the entire biofuels complex. Singapore to Rotterdam freight for vegoil and biofuel cargoes remains near $135-160/mt depending on parcel size while Red Sea/Oman to Rotterdam routes remain near $130-180/mt. The tanker market increasingly appears to be adapting to a structurally fragmented world where Middle Eastern energy dominance is no longer taken for granted. This fragmentation is also increasingly visible in financial markets. Gold continues strengthening above $4,700/oz while the dollar’s share of global reserve holdings continues drifting lower, reinforcing the broader geopolitical shift underway across energy, trade and monetary systems at the same time.

Brazilian FOB soyoil remains deeply discounted versus CBOT futures despite the correction in bean oil today. Paranagua nearby indications remain around -2100 to -2200 points versus CBOT while OND positions still trade near -1700 to -1900. The RFS island effect therefore remains fully intact. The United States continues pulling vegetable oils and renewable molecules into a structurally isolated domestic pricing system supported by D4 RINs above $2.08, LCFS economics and persistent distillate scarcity. Today’s liquidation removed some geopolitical premium from screens, but the underlying physical market still says replacement barrels remain difficult and expensive to secure.