Fed Cuts, EPA Confusion, Asia Refining Shifts — Europe dependency sets HVO rotation

The dollar index plunged below 97 today after the Fed confirmed another two rate cuts before year-end. With DXY breaking down, the move accelerated across commodities. BOGO fell 5% to +426 $/mt in October and +467 $/mt in December, led by soybean oil, which shed 2.5%. Much of the weakness stemmed from renewed disillusionment with the EPA and the RFS framework. A large band of call option positions between 55 and 65 strikes remains outstanding, and with only 65 days to December expiry, this overhang now represents a threat of further downside pressure should positions continue to be unwound. The legality of SRE volume reallocations is now front and center, but lawsuits are likely to drag past the EPA’s self-imposed October 31 deadline.

DXY

Political gridlock is adding fuel to the bearish tone. Government funding negotiations remain stalled, with Republicans and Democrats trading blame over the risk of a shutdown. D4 RINs mirrored the weakness, sliding to $1.03/gal, and momentum suggests a return below the $1 threshold is imminent. The pricing collapse underscores the loss of confidence in U.S. biofuel policy execution, with speculative length quickly evaporating.

D4 RINs

In Europe, the mid-week ARAG session was unusually active. RME traded at +757 $/mt over ICE gasoil, fixing a flat price near $1461/mt, while FAME0 lagged $72 below. UCOME was equally firm at $1489/mt, a $99/mt premium to FAME0. The weaker dollar enhances euro-denominated buying power, making forward purchases of biodiesel financially attractive. Against this backdrop, Greenergy announced a 10-year extension of its lease on the Amsterdam biodiesel plant following a 25% capacity expansion completed in 2024. While this signals commitment, it comes at a time when Europe’s cost structure undermines the competitiveness of conventional biodiesel.

The structural dependency problem is acute. Esterification biodiesel requires methanol, power, and alkaline catalysts such as potassium hydroxide (KOH) or sodium hydroxide (NaOH). European producers once had a domestic chemical base for these, but high energy costs and environmental compliance have hollowed it out. Today, more than 70% of Europe’s KOH supply is imported, with China controlling close to half of global production capacity. Catalyst prices have been volatile, and freight disruptions only add to costs. For European FAME and RME plants, this means margins are permanently exposed to Chinese export availability and arbitrage flows. HVO/RD units, which bypass alkali catalysts altogether by relying on hydrotreating, are therefore structurally advantaged. This import dependency leaves Europe’s esterification industry vulnerable to both geopolitical risk and cost squeeze, reinforcing the investment case for rotation away from conventional biodiesel.

In Asia, the divestment wave in Singapore is gathering pace. Following Shell’s sale of its Bukom and Jurong Island refining assets to the Glencore–Chandra Asri consortium earlier this year, Chevron is now marketing its 50% stake in Singapore Refining Company, a 290,000 bpd plant on Jurong Island. Vitol and Glencore are lining up formal bids, though PetroChina — which owns the other half — holds the first right of refusal. For trading houses, control of Singapore capacity secures advantaged access to the world’s largest bunkering hub and offers blending and storage leverage across Asia. For majors, it signals another step in exiting high-carbon downstream exposure in the region, effectively allowing China and India to set the pace for regional product flows as PetroChina and Indian-linked investors take center stage.

Vegoil markets in Asia looked bullish yesterday, but the rally was largely imported. CME soyoil had surged 1.8% to 53.20 c/lb, boosted by crude oil strength and trader misinterpretation of EPA’s SRE actions. Dalian futures simply followed Chicago, with January palm olein up 1.2% to ¥9,482/t and rapeseed oil hitting a one-month high. At the same time, reports of flooding in Malaysia’s Sabah region gave sellers cover to lift CFR India offers to $1,180–1,195/t for Sep–Nov shipment, even though trade flows remain muted. India is past peak Diwali booking and China’s Golden Week lull is imminent, so fundamentals point to softer offtake. The “bullish” tone is futures-led, not demand-led, and underscores the fragile nature of current price strength.

The trade signal remains rotation. Investors overweight in conventional biodiesel risk continued margin compression, while HVO/RD assets stand to benefit from policy tailwinds and better supply chain resilience. The dollar slide adds another tailwind to euro buyers of physical barrels, but the structural bet is still long-HVO/SAF, short-FAME. Weaker dollar dynamics combined with the U.S. government shutdown drama will only add to volatility over the next 10 days, making positioning even more critical as the global renewable fuel mix tilts decisively away from conventional biodiesel.