Energy Sells Off Into Conflicting Signals Across Distillates, Feedstocks and Policy

Energy markets corrected sharply with ICE gasoil down to $1,195.50/mt, a weekly move of -$153/mt or -11.35%. The move is significant, but it is not occurring in a clean fundamental environment.

On the one hand, there are tangible bearish inputs. Diplomatic headlines around a potential U.S. proposal to Iran triggered selling. Saudi Arabia has increased exports out of Yanbu to close to 4 million bpd, up from sub-1 million bpd earlier in the conflict. U.S. crude inventories have also built, contributing to the perception of short term relief.

On the other hand, physical disruption remains substantial. Iraq southern output remains sharply reduced with flows through Hormuz still constrained. Across the region, production and export losses remain material, with several producers operating well below normal levels. Flows are not normalized, they are being rerouted.

Russia adds another layer of disruption. Around 40% of its export capacity, roughly 2 million bpd, is currently impacted by Ukraine attacks on infrastructure and logistics. This reduces product availability into the Atlantic basin and limits system flexibility.

Asia continues to reflect tightness despite the selloff. Singapore 10ppm diesel remains at $205.68/bbl with cash differentials at $51.57/bbl and refining margins near $55/bbl. This is not consistent with a loose system.

Structure has eased. Mar/Jul gasoil backwardation has compressed by roughly $70/mt from recent highs above $340/mt to around $270/mt. Heating oil futures are down 6–7% across the curve. The correction is visible in paper rather than in prompt physical availability.

In Northwest Europe, the ARAG barge window shows that physical premiums remain intact. FAME traded at $240–250/mt over ICE front month, implying flat prices around $1,435–1,445/mt. UCOME traded at $389–400/mt over, implying $1,585–1,595/mt. HVO Class II traded at $1,260/mt premium, implying flat price near $2,450/mt. Premiums have not followed the flat price lower.

Feedstocks are diverging from energy. Bean oil is at $1,475/mt, up $26/mt on the day. BOGO has widened to +408.85, up roughly $95/mt, while BOHO has strengthened to 1.25. Vegetable oil markets are holding.

In South America, logistics are tightening due to diesel cost and availability. Brazilian soybean exports are running about 18% below last year on a daily basis during peak shipment season despite a record crop. This reflects transport friction rather than supply shortage. FOB Paranagua soyoil remains between -950 and -1400 points , showing pressure at origin that is not fully transmitting into destination markets.

Palm oil exports are up 38% to 50% month-on-month, yet destination pricing remains stable. This again points to logistical constraints rather than excess supply.

For biodiesel and renewable diesel, the signal remains mixed. The US biodiesel crush has dropped to $0.891/gal, down 27% on the day, driven by heating oil weakness. At the same time, D4 RINs remain firm at 1.71, indicating that compliance demand remains intact.

Policy risk is now front and center and increasingly contradictory. The EPA has already issued a nationwide waiver allowing E15 and removing restrictions on E10 from May 1 through May 20 to increase domestic fuel availability. Friday’s White House agriculture and biofuels meeting and the imminent EPA RVO announcement add a second layer of uncertainty, with expectations for higher mandates already largely priced in.

At the same time, Asia is moving in the opposite direction to reduce energy costs. Singapore has postponed its SAF levy to 2027 due to the impact of the current energy environment on airlines and fuel costs . This is a clear signal that high energy prices are forcing a delay in decarbonization measures.

For biodiesel and RD traders, the key takeaway is not direction but inconsistency across all layers of the market.

Gasoil down $153/mt week-on-week.Singapore diesel above $200/bbl.Middle East flows disrupted but partially rerouted.Russian export capacity down by ~2 million bpd.Brazil exports down 18% due to diesel-driven logistics constraints.BOGO up nearly $100/mt.D4 RINs holding at 1.71.EPA waivers active, RVO imminent, while Asia delays SAF policy.

This is not a market sending a clean signal.

Paper is reacting to diplomacy, inventory builds and positioning.

Physical markets still reflect constraint in distillates and friction in feedstocks.

Policy is pulling in different directions across regions.

The prudent approach here is caution. The current move lower in flat price is not matched by a clear normalization in physical balances, and the number of contradictions across energy, vegoils and policy is elevated. Goldman has published a chart of expectations for Brent pricing - pick your color!