Flat Price Fallout Hits Biodiesel Hard

The latest EIA report rattled energy markets with a 3% drop in U.S. product demand alongside a build in crude and refined stocks, a clear sign that the U.S. economy is slowing. The reaction was immediate: backwardation in ICE gasoil collapsed, with Oct/Dec spreads plunging 25% to +15.75 and Oct/Jul spreads retreating to +45.50. Flat prices tumbled nearly a full standard deviation on the day, and when diesel or gasoil flat prices fall sharply, it is never good news for biodiesel margins or discretionary blending. The reason is structural: biodiesel and renewable diesel are, in essence, extensions of the diesel pool, and any erosion in demand for the broader pool has an outsized impact on biofuels since they represent only a smaller share of total supply.

This sharp move spilled over into biofuel spreads. Dec BOGO surged 5% to +456, while the forward curve steepened, with Jul 2026 contango narrowing to –79.64 from last week’s –109—a 27% swing in just days. In the ARAG window, activity was brisk but subdued in tone. FAME 0 flat price retreated $28/mt to $1,354, while UCOME/RME narrowed back to +37. RME traded at $1,443, implying a premium of +770/mt over ICE gasoil—well above the monthly average. Gross margins on RME remain strong at +168/mt, compared to F0 at $120/mt, keeping UCOME relatively more attractive.

Forward paper markets are already reflecting this preference, with UCO-linked contracts commanding interest despite ongoing scrutiny of import origins. Eurostat data confirms that EU UCOME imports reached 1.04 million tonnes in H1 2025, with China supplying 41% (431,000 tonnes)—almost double last year’s volume despite tariffs of 10–35%. Russia imports have collapsed but have been replaced by UCOME imports from Saudi Arabia (30%) and Argentina (18%)!!

In Asia, crude palm oil futures in Malaysia rebounded after a three-day slide, supported by a weaker ringgit and expectations of lower output. December CPO settled at 4,390 ringgit ($1,044) per tonne, while cash trades into India concluded at $1,130–1,135 CFR east coast and up to $1,167.50 CFR west coast for Q1 2026 shipment. Indonesian reference prices were lifted to $963.61/mt, keeping the CPO export tax at $124/mt plus a 10% levy. At the same time, Jakarta is facing mounting fiscal and political pressure, now pledging a $2bn “Christmas stimulus” in the form of direct cash bonuses to its population to quell rising economic and social strains. This underscores the fragility of Indonesia’s funding model for its biodiesel mandate, where export levies and taxes on palm flows remain critical sources of subsidy revenue. POME oil FOB Malaysia held steady at $1,090–1,100/mt, with refined offers closer to $1,175–1,180 FOB Indonesia. The Dec palm–gasoil spread (POGO) widened to +379, eroding palm’s competitiveness versus gasoil despite weak demand in China during Golden Week.

Meanwhile in the U.S., D4 RINs remain under pressure, with traders wary that the government shutdown could impede RIN generation and broader compliance activity. Adding to the bearish tone, the biodiesel screen crush margin has collapsed to around 50 cents per gallon negative, leaving little incentive for conventional biodiesel production. With policy uncertainty and slowing demand colliding, the biofuels complex enters October at a pivotal juncture.