Distillates Snap Back as Both the US and China Hit Critical Diesel Lows While Palm and Soyoil Flush Crush BOHO
The post-midterm "peace discount" that wiped nearly 9% off the energy complex on Wednesday ran straight into a sobering physical reality today, sparking a nearly 4% rebound across crude and distillates and sending the ICE gasoil curve roaring back into deep backwardation. After briefly slipping below +$200 per tonne during yesterday's washout, the November/April ICE gasoil spread (GASX26 - GASJ27) surged back to a commanding +$220.75 per tonne today as prompt November gasoil climbed $15.50 to $1,371.25 per tonne while April slipped $3.50 to $1,150.50 per tonne. What is truly worrying for the global distillate balance heading into winter is that the two largest economies in the world—the United States and China—are simultaneously sitting on critically low diesel inventories, with US stocks having breached the 100-million-barrel operational minimum to their lowest level since May 2003 right as Chinese commercial diesel inventories plunged to a new multi-year low in October near 1.05 million tonnes. At the same time, any apparent recovery in Persian Gulf crude export volumes comes at an extraordinary landed cost: with Hormuz crossings running dark and nearly halting over the past weekend after a war-record 35+ vessel attacks in October and US strikes on Qeshm Island, the barrels actually clearing the region are burdened by punitive war-risk insurance, 23-day Gulf of Oman ship-to-ship (STS) shuttle expenses that have tied up roughly 80 VLCCs and pushed MEG–China freight near $1.35 million per day, and hefty security or toll payments. Against this tight and expensive physical backdrop, January Brent crude surged $3.72 (+3.93%) to $98.34 per barrel (widening the Jan/Feb spread by $1.04 to +$3.49/bbl), December WTI climbed $2.51 (+2.85%) to $90.63 per barrel, and December NYMEX heating oil jumped 14.84 cents (+3.53%) to $4.3539 per gallon—lifting the implied December heating oil crack to $92.23 per barrel and widening the Dec/Jan ULSD backwardation to +11.04 cents/gal. Overnight, a mass Ukrainian drone wave struck Ryazan Oblast, where regional authorities confirmed industrial fires and power damage at a 17-million-tonne-per-year refinery whose main crude unit was already offline from mid-October, marking roughly the fifth major strike in seven days. Meanwhile, expectations that the General License 135 waiver would refill the US East Coast with Russian diesel before winter are unraveling: zero Russian diesel cargoes have been delivered to the US, as the sanctioned Leruo diverted toward Brazil, the Talisman turned into the Mediterranean off Algeria, the Taurus departed Wilmington without discharging, and the lone vessel still pointing west—the Agioi Fanendes(~40 kt ULSD, ETA around November 7)—now shows "for orders" with no confirmed US buyer after New Jersey's governor warned NY/NJ port terminals against accepting the cargo, leaving retail diesel in Arizona averaging $6.28 per gallon.
In Europe, inland river logistics took a dramatic turn for the worse overnight just as the +$220.75 per tonne Nov/Apr ICE gasoil backwardation underscored acute prompt distillate tightness across the continent. According to WSV PEGELONLINE data, the Rhine River at Kaub slipped 3 cm today to 20 cm (57 cm below the Guaranteed Inland Waterway mark and 5 cm beneath the 2018 record low, leaving ~1.33 meters of fairway depth), while a rapid 27 cm upstream drop at Maxau caused both official German hydrological models to slash their weekend outlooks. The official ELWIS forecast now projects Kaub to plunge to 8 cm late Saturday (November 7) and 5 to 6 cm on Sunday and Monday (November 8–9)—a 12 to 13 cm downward revision from yesterday's run—while the 14-day BfG ensemble cut its mid-November recovery median from 73–81 cm down to just 39–53 cm. Standard barges can no longer pass Kaub, leaving only specialized low-water vessels to move diesel to Basel at near-record freight rates (€254.50/t on the last weekly print), forcing the Swiss government to release additional jet fuel from strategic reserves this week as the Bottrop refinery halts Swiss-grade diesel deliveries for November and major chemical and industrial plants along the river cut output. In Northwest European biofuel and feedstock markets, UCOME FOB Netherlands climbed $40 to $1,671 per tonne on November 4 while HVO Class 2 eased $45 to $2,650.56 per tonne (and HVO Class 4 dropped $259 to $2,855.51/t on Nov 3), even as physical Dutch mill vegetable oil offers fell €15 to €20 per tonne today—taking December Dutch soyoil to €1,315/t and December rapeseed oil to €1,285/t. Looking further ahead for European rapeseed and grain production, Eurostat trade data shows that high natural gas prices (with TTF touching €100/MWh on October 28), escalating EU tariffs on Russian urea (€60/t plus 6.5%), and the new 2026 CBAM carbon levy (adding nearly €43/t to Egyptian urea) caused extra-EU urea imports to halve from 4.48 million tonnes to 2.23 million tonnes in January–August 2026, saddling European farmers with severe input cost inflation.
Across the Americas, a sharp divergence between rallying heating oil and flushing soybean oil triggered a massive collapse in the BOHO spread and propelled screen renewable diesel crush margins back above the $1.00 per gallon mark. CME December soybean oil plunged 1.29 cents (-2.03%) today to 62.24 cents per pound ($1,372.14/mt)—with January down 1.32 cents to 62.42 cents and the Dec/May carry widening to -1.12 cents—dragging December board crush down 5 cents to $2.015 per bushel (201^4) and January down to $1.9725 (197^2). Because December heating oil surged 14.84 cents while bean oil shed nearly 10 cents per gallon equivalent, the December BOHO spread collapsed 24.52 cents (-43.84%) today from +55.93 cents down to +31.41 cents per gallon (with November BOHO down 59.49% to just +7.18 cents/gal), while December bean oil expressed as a percentage of ICE gasoil dropped from 108.74% to 105.53% (compressing implied December BOGO back toward +$72/mt as December gasoil rebounded near ~$1,300/mt). That violent spread reversal sent screen December renewable diesel crush margins surging 25.76 cents (+32.47%) from $0.7934 to $1.0511 per gallon, and conventional biodiesel crush jumping 24.47 cents (+14.02%) to $1.9905 per gallon. That underlying feedstock weakness was reinforced by this morning's USDA weekly export sales report (for the week ended October 29): while US net soybean sales hit 1,456,000 tonnes (with China taking 60% and total commitments up 76% year-on-year at 30.23 mmt), US net soybean oil export sales were a dismal 1,500 tonnes, leaving cumulative 2026/27 soyoil export commitments down 77% year-on-year at just 38,000 tonnes.
On the North American policy, feedstock, and inland river fronts, the battle lines over 2026/27 compliance hardened after yesterday's EPA virtual hearing on the 770-million-RIN SRE reallocation proposal (published in the Federal Register on October 16, with public comments closing December 4). Biofuel and agricultural groups demanded all 770 million RINs be reallocated and split evenly between 2026 and 2027 before year-end alongside broader exemption reform, whereas refining groups attacked reallocation as unlawful and a 30-to-40-cent-per-gallon affordability hit, and biogas producers pushed for cellulosic reallocation that the EPA has thus far declined—leaving December 2026 D4 RIN futures (DEC26) down 2.23% today at $1.930 (and Dec '27 down 1.91% at $1.942) as traders await the final rule and the still-overdue 2028 RVO volumes. In the physical US cash market, spot US renewable diesel rose 7.8 cents to $3.984 per gallon on November 4 while US SAF fell 31 cents to $6.04 per gallon, with US Gulf UCO holding steady at 71.0 cents per pound (~$1,565/t, maintaining a $390/t spread over FOB China bulk) and USDA yellow grease holding at 46.75 cents per pound FOB Minnesota (~$1,031/mt) and 67.00 cents delivered Southern California. Even with the spot dip in SAF, industry participants at this week's North American aviation conference emphasized that voluntary SAF demand continues to outstrip supply, though unlocking new capacity requires multi-year offtake commitments alongside emerging state-level tax incentives such as Kentucky's. Meanwhile, on the Mississippi River, NOAA and NWS forecasts trimmed St. Louis's Tuesday (November 10) crest projection for the first time from 13.9 feet to ~12.3 feet (current stage 5.22 ft), while Memphis remains at -3.91 feet (Day 12 below the 0.0 ft low-water trigger) with only a brief five-day window above zero forecast for November 13–18 before plunging back to -5.1 feet by December 3, right as the US Army Corps of Engineers schedules a total Ohio River closure at Smithland L&D on November 14 following Olmsted's river chamber closure through November 13.
In Asia, a sharp breakdown in Malaysian palm oil futures collided with the collapse in Chinese commercial fuel inventories, underscoring the stark divide between heavy vegoil supplies and acute distillate scarcity. Benchmark BMD January CPO plunged 121 ringgit (-2.69%) overnight to settle at 4,375 ringgit per tonne (down from 4,552 on Wednesday)—its lowest close since March 6—on weakness in rival oils and expectations that the Malaysian Palm Oil Board's (MPOB) November 10–12 release will show October end-stocks rising to around 3.75 million tonnes. With CME soyoil also dropping $28.44 per tonne today, live December BOPO stands at +$236.39 per tonne, while the surge in prompt ICE gasoil to $1,371.25 per tonne is pushing live POGO deeper into negative territory after January POGO (POGF27) settled yesterday at -$75.85 per tonne (and December POGZ26 at -$124.80/mt, with November POGX26 at -$202.00/mt). In China, while domestic East China UCO held flat on November 4 at ¥7,450 per tonne for standard grade and ¥7,750 per tonne for premium (with FOB China bulk unchanged at $1,175/t and flexi at $1,115/t), the plunge in Chinese commercial diesel stocks to ~1.05 million tonnes (and gasoline to ~950,000 tonnes) effectively removes the world's main swing export buffer—meaning that with both the US and China simultaneously running on fumes in diesel and Nov/Apr ICE gasoil backwardation back above +$220 per tonne, global distillate cracks and biofuel blending margins have a powerful physical floor underneath them despite the political noise.
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