Energy Strength vs. Trade Uncertainty – Biofuels Brace for Diplomatic Risk

After yesterday’s diesel-led distortion, today belonged to refining margins as heat cracks blew through $40/bbl, marking a multi-month high and reinforcing the disconnect between screen profitability and physical diesel demand. The same divergence was evident in Asia, where regional diesel margins breached $26/bbl even as cash premiums softened—a clear sign that refinery cracks are running ahead of consumption. ICE gasoil for Z25 held near $700.75/mt, the curve still backwardated but with the front easing slightly; refining strength remains a strong paper phenomenon.

The distortion fed straight into biofuels. BOGO eased into the low +400s, mirroring diesel’s drift rather than feedstock moves, while BOPO jumped back into the +80–130 range as palm collapsed more than 1 percent on the day. Malaysia’s benchmark contract slid to a near-12-week low amid talk of Indonesia studying an increase in its export quota—fueling worries of fresh supply and keeping palm the weakest leg of the veg-oil complex. The softness in palm versus steadier soybean oil explains today’s BOPO rebound.

ARAG remained heavy. RME traded at $1,447/mt FOB ARA, FAME 0 at $1,352/mt, and UCOME at $1,518/mt, leaving the UCOME/RME spread at +$71/mt. Buyers stayed cautious, focusing on nearby positions and rolling hedges rather than extending forward coverage. Physical liquidity was thin, and sentiment was defensive despite high cracks on paper.

In the U.S., D4 RINs slipped again to 1.015, reflecting muted blending appetite even as refinery margins look spectacular. Political clarity didn’t improve—industry groups filed suit against EPA to force the 2026 RFS mandates on schedule, another reminder of policy drift. On the production side, Phillips 66 boosted SAF output again in Q3, a move that looks less like expansion and more like a response to weak renewable-diesel offtake. California blenders are already long compliance, and LCFS credit monetization remains sluggish, so shifting volumes into SAF appears to be demand management rather than growth.

Soybeans traded nervously ahead of the Trump–Xi meeting tonight. China reportedly booked two to three PNW soybean cargoes earlier this week, but fresh demand stalled as traders waited for clarity. Trade desks avoided directional soy exposure, aware agriculture could be used as a bargaining chip in broader talks that include EV tariffs, shipping access, and technology concessions. The Mississippi River remains barely navigable, reinforcing domestic crush and soyoil oversupply.

Europe’s policy landscape offered little comfort. UFOP reiterated that shifting Annex IX eligibility could again distort regional biodiesel balances this winter: if waste-based imports accelerate, RSO-based production loses share; if certification tightens, inland premiums spike. Either way, optionality remains the only rational posture for ARAG players.

Net-net: Refining cracks are booming, diesel demand is not. BOPO up, BOGO down, palm still weak, RINs softer, and traders globally are flat-footed into a geopolitical event that could redraw near-term agri flows. The tone stays neutral until Washington and Beijing show their hands.