European Biodiesel Capped by Feedstock Anomaly as Distillate Tightness and Paper Hedging Diverge

Middle distillates tightened into expiry while biofuels remained constrained by feedstock pricing and risk management behavior. February U.S. heating oil traded near 2.67 dollars per gallon while February ICE gasoil traded around 703 dollars per metric ton, implying a heating oil premium of roughly 100 dollars per metric ton after unit conversion. ICE gasoil spreads stayed backwardated, with Feb Mar near plus 10 dollars per metric ton and Feb Apr near plus 25 dollars per metric ton, consistent with tight nearby distillate availability rather than structural scarcity.

U.S. natural gas reinforced the localized nature of the squeeze. February physical gas expired near 6.91 dollars per MMBtu while March traded around 3.72 dollars per MMBtu, a front month premium of about 3.2 dollars per MMBtu. Whoever got priced at these levels is going to hurt for a while. Weather impacts were uneven. National forecasts showed large parts of the Midwest and Northeast in the 20s to low 30s Fahrenheit, but disruptions remained regional and power outages limited, with normalization expected within days rather than weeks. Alert map shows how limited the situation is on a national scale.

European physical biofuels stayed defensive. In the ARAG window, RME traded around 1,388 dollars per metric ton, below the reported monthly average near 1,405 dollars per metric ton, a discount of roughly 17 dollars per metric ton. UCOME traded near 1,438 dollars per metric ton. HVO Class II traded around 2,394 dollars per metric ton, implying a premium of about 956 dollars per metric ton to UCOME and about 1,006 dollars per metric ton to RME. FAME 0 traded near 1,325 dollars per metric ton, effectively capping biodiesel flat prices.

The central distortion remains Northwest Europe soyoil. FOB indications around 1,090 to 1,110 euros per metric ton translate to roughly 1,308 to 1,332 dollars per metric ton at a USD EUR rate of 1.20. This places NWE soyoil within roughly minus 17 to plus 7 dollars per metric ton of FAME 0 at 1,325 dollars per metric ton, leaving effectively zero processing or compliance margin.

International benchmarks sit materially lower. CME March soyoil near 54.4 cents per pound equates to about 1,199 dollars per metric ton, placing NWE soyoil roughly 109 to 133 dollars per metric ton above futures. Asian physical values near 1,135 to 1,145 dollars per metric ton CFR West Coast India imply a premium of roughly 163 to 197 dollars per metric ton for NWE soyoil before freight and basis adjustments. The price signal is clear, NWE soyoil is rich versus global values by triple digit dollars per metric ton.

Crush economics frame but do not justify this outcome. Soyoil represents about 47 percent of total soybean crush value, meaning elevated oil prices support crusher revenue even when meal absorbs margin pressure. However, soybean and meal markets do not show tightness consistent with a 100 to 130 dollar per metric ton oil premium, and biodiesel economics do not validate oil pricing at near parity with finished FAME.

German data confirms that regulatory ambition continues to outpace physical demand. UFOP estimates show biodiesel and HVO blending in Germany at about 2.2 million metric tons in 2025 versus about 2.075 million metric tons in 2024, an increase of roughly 125 thousand metric tons or about 6 percent. This occurred while the GHG quota rose to 10.6 percent from 9.35 percent, an increase of 1.25 percentage points. Double counting remained available throughout 2025, helping explain why higher quota targets translated into limited incremental physical blending.

Paper biodiesel trading has become a key hedging mechanism under these conditions. Weekly paper volumes peaked earlier in the month. Week 3 recorded about 909 thousand metric tons across RME at 193, FAME 0 at 227.7, UCOME at 286.8, and HVO2 at 201.3. Week 4 followed with about 782 thousand metric tons, split across RME at 211, FAME 0 at 175, UCOME at 239, and HVO2 at 157.1. Midway through week 5, cumulative paper volume stands near 375 thousand metric tons, with RME at 108, FAME 0 at 85, UCOME at 135, and HVO2 at 47. These figures remain incomplete and subject to revision as week 5 progresses, and should be read as ongoing position management rather than a finalized weekly signal. It doesn't look like we are going to crack 1 Mil MT this week.

Currency provided a secondary overlay. DXY traded near 96.4 following comments signaling tolerance for a weaker dollar. While this supported dollar denominated commodities at the margin, it did not offset the structural constraint imposed by elevated NWE soyoil and capped biodiesel margins.

Bottom line. Distillate markets are signaling tight nearby supply, with heating oil trading at roughly a 100 dollar per metric ton premium to ICE gasoil and gasoil spreads backwardated by up to 25 dollars per metric ton. European biofuels remain capped, with RME near 1,388 dollars per metric ton and FAME 0 near 1,325 dollars per metric ton while NWE soyoil translates to 1,308 to 1,332 dollars per metric ton. Germany blended about 2.2 million metric tons in 2025 despite a quota increase to 10.6 percent. Paper biodiesel volumes remain an active hedging tool mid week 5. Until NWE soyoil realigns with global values or quotas drive measurable incremental offtake, the ceiling on European biodiesel pricing remains capped at current levels unless geopolitical situation changes dramatically - remember we are $100/mt higher on gasoil already than the lows on Jan 9.