Europe Politicizes Biofuels, U.S. Suffocates Under Logistics

Strange tape today as Europe once again traded against fundamentals. ICE gasoil slid to around $709/mt in a nearly one standard deviation move lower despite escalating sanctions rhetoric and tightening language from Brussels. The forward curve remains backwardated but visibly softer, with Nov/Dec narrowing 15% to +$16.75 and Nov/Apr at +$60.25. Cracks should be stronger at this stage of Q4 if supply risk were real, but screens continue to price pessimism rather than shortage. Diesel weakness mechanically inflated BOGO to +412 (+2.21%), a spread move driven by soft gasoil rather than feedstock demand. ARAG reflected that stress as FAME 0 weakened to $1,360/mt (-$40.75), RME printed fp $1,436/mt and UCOME traded fp $1,523/mt, keeping UCOME/F0 at +163. BOPO cracked lower to +48 (-20%), opening the door to a repeat of last year’s slide into negative territory even if palm keeps leaning lower.

Regulation in Europe is once again working against market stability. The EU Commission’s Delegated Directive 2024/1405 proposes expanding Annex IX to include catch crops and material from degraded land, but UFOP has issued a formal warning that this risks opening new fraud channels unless traceability and certification enforcement are strengthened first. UFOP argues that catch crops cannot realistically achieve threshability within EU growing cycle limits, meaning Annex IX expansion could simply invite a new wave of questionable “advanced” volumes routed through third countries into EU compliance systems. That carries real market consequences: if Annex IX expansion incentivizes additional inflows, it could displace RSO-based biodiesel in Europe this winter and weaken rapeseed oil fundamentals just as supply is rebuilding from imports. The structural problem remains double counting, which continues to distort biodiesel and renewable diesel trade flows in Europe by rewarding imported Annex IX paper barrels over real RSO production and soaking liquidity out of ARAG.

In the U.S., soybean oil structure continues to weaken with Dec/Mar at -0.90 and Dec/May out to -1.17. One important nuance today is that biodiesel screen crush margins have improved by roughly $0.20–$0.25/gal as soybean oil retreated, but the relief is mostly optical—physical margins remain uneven once freight and RIN monetization timing are factored in. The latest EIA capacity data confirms what forward spreads have already implied: U.S. renewable diesel build-out has stalled. Total RD and “other biofuels” capacity increased only 391 million gal/year in 2024 to 4.72 billion gal/year across 19 units, with just two additions (Phillips 66 Rodeo, California now 767 million gal/year and Renewable Fuels LLC Bakersfield at 138 million gal/year). Meanwhile, Chevron El Segundo and Monroe Trainer halted co-processing, and Vertex Energy Mobile plus Jaxon Energy in Mississippi shut down fully. Biodiesel capacity fell to 1.986 billion gal/year after eight plant closures concentrated in PADD 2. Phillips 66 and Diamond Green Diesel now control more than 40% of U.S. RD capacity and can swing 350–400 million gallons per year into SAF, which weakens total feedstock pull and explains why bean oil spreads continue to widen despite strong crush pace.

Logistics are now reinforcing feedstock oversupply. The Mississippi River at St. Louis sits at 1.09 feet—still critically low despite a minor weather bump from the Ohio basin. Draft limits remain in place, barge tows are restricted, and movement southbound is slow and expensive. That keeps U.S. Gulf exports uncompetitive versus Brazil and traps more soybeans inside the domestic system. More beans at home mean more crush and more soyoil that must clear into a market already facing renewable diesel demand fatigue. This is bearish for bean oil spreads and marginally supportive for biodiesel economics in the near term but does nothing to help renewable diesel margins, which remain structurally weaker. LCFS credits in California hold in the mid-$50s/mt and D4 RINs eased to 1.025, reflecting muted margin appetite. Policy noise in Washington is now a credibility problem: the shutdown confrontation is already colliding with RFS/RVO deadlines, and 45Z guidance remains stuck at Treasury with no execution timeline. That paralyzes investment because nobody will commit capital until IRA tax credit treatment is clarified.

Asia continues to apply pressure through palm. Indonesian palm production is now more than 13% higher year-to-date, and exports remain resilient, helped by India and Middle East buying even as China oscillates. Malaysian stocks are building again, reinforcing availability and dragging BOPO lower. Palm is once again acting as the global pricing floor in soft oils, capping upside in CBOT soyoil and ICE canola. That global soft oil ceiling combines with U.S. soyoil oversupply to undermine feedstock sentiment. Japan headlines gave soy a brief speculative lift as Trump continued his Asia tour, but details of the U.S.-Japan agricultural cooperation announcement remain vague and more political than commercial. Trade desks see little immediate volume impact while the U.S. river system remains crippled.

Right now, nothing trades on fundamentals—only distortions. Diesel is too weak, palm is too available, bean oil structure is breaking down under domestic crush, and Annex IX politics are destabilizing Europe again. Policy isn’t anchoring anything: the shutdown threatens RFS administration, double counting continues to sabotage European price discovery, and 45Z is frozen in Treasury purgatory. Until cracks find direction and logistics normalize, this market will keep trading noise instead of price signals—and November could get violent for anyone positioned on logic rather than tape.