Futures Price Peace While Physical Markets Price Shortage

The market is trading a de-escalation narrative that is not visible in physical flows. Early trading reflected this, with crude down around 1%, soybean oil down about 85 points, palm oil down roughly 70 points, and grains broadly weaker on the session. At the same time, attacks continue and logistics remain impaired. Futures are pricing relief, but the physical system continues to signal tightness.

The distillate complex remains the anchor. ICE gasoil front month is trading around $1,346/mt and remains strongly backwardated, with Brent Jun/Dec spreads near $10–11. Heating oil equivalents remain above $4.00/gal, and jet fuel is trading near $200/bbl. These levels reflect a prompt shortage of middle distillates. Even in a de-escalation scenario, normalization will take months due to refinery restart timelines, insurance constraints, and port congestion. Apr/Dec ICE gasoil has not let up and still reflecting a serious crisis level trading today at +$526.75.

Northwest Europe spot barge activity today confirms that physical markets are not aligned with futures weakness. Window trades showed RME consistently transacting around $145–150/mt over ICE gasoil, FAME 0 in a $100–130/mt range, and UCOME near $250/mt. HVO Class II traded at approximately $1,310/mt outright. Using ICE gasoil at ~$1,346/mt, this implies flat prices of roughly $1,490–1,500/mt for RME, about $1,450/mt for FAME 0, and above $1,600/mt for UCOME. Multiple trades cleared at these levels, confirming that prompt replacement remains the driver and that physical liquidity is intact.

Feedstocks are weakening into this strength. CBOT soybean oil is trading around 67 c/lb, equivalent to about $1,470/mt, down across the curve. In Europe, Dutch-origin soybean oil is indicated at about €1,145/mt FOB, or roughly $1,240–1,260/mt depending on FX. FOB Paranaguá premiums remain deeply negative, in a range of about -1,100 to -1,500 versus Chicago. This implies a gross replacement margin for RME of about $230–260/mt before methanol and operating costs. Feedstock supply is not the constraint. May/Jul Soybean oil is now in contango!

Demand signals remain soft on the vegoil side. China’s soybean purchases from Brazil for the Feb to Aug window are about 37.9 million tons, slightly below last year, while EU soybean imports at 9.31 million tons are down about 10% year on year and soymeal imports at 13.42 million tons are down about 5%. This confirms that global vegoil demand is not tightening alongside energy markets.

In the United States, the system continues to tighten through policy. D4 RINs are trading at 1.81. The EPA framework highlights a structural imbalance between mandated volumes and production capacity, with 70–75% of biomass-based diesel feedstocks expected to be domestic and limited imported volumes. A critical update is that the RIN equivalence value for biodiesel and renewable diesel is set at 1.50 for next year starting Jan 1, 2027, compared to 1.60 used in current market calculations. This reduces RIN generation per gallon by about 6.25%, tightening the system further and reinforcing the need for higher prices or increased imports to meet mandates.

A similar tightening dynamic is emerging globally, but for different reasons. Indonesia is moving toward B50 implementation from July 1, implying an additional demand of roughly 2 million tons of palm-based feedstock as it seeks to reduce diesel import dependence. In contrast, the United States is expanding biofuel demand primarily to support domestic agriculture, particularly soybean oil, in the context of trade tensions with China. The result is the same, a structural pull of vegetable oils into energy, but the drivers differ.

The crude market structure reinforces the same message. Middle East crude has traded near $170/bbl, and benchmark pricing has come under stress as flows through Hormuz remain impaired and deliverable supply has been reduced. Physical crude markets are adapting, but pricing mechanisms are under pressure.

The central contradiction is now clear and supported by data. Futures markets are pricing lower prices across crude and vegoils on de-escalation expectations. Physical markets are clearing at elevated levels, with gasoil above $1,300/mt, jet near $200/bbl, RME near $1,500/mt flat, and RINs at 1.81. The divergence between paper and physical markets continues to widen.

The current price environment is already triggering substitution effects. In Asia, rising fuel costs are accelerating interest in electric vehicles, with EV loan demand in Australia up 100% in March and registrations doubling in several markets. This shows that sustained high prices begin to alter demand patterns, not only supply.

What is emerging is not a temporary adjustment but a structural shift in how countries approach energy - much like what we saw after 1973. Indonesia is increasing biodiesel mandates to reduce diesel imports while India is finally making E20 mandatory. The United States is redirecting soybean oil into domestic fuel production through policy support. Europe is discussing rationing mechanisms as a response to supply stress. At the same time, high fuel prices are accelerating EV adoption across Asia. These are measurable changes. They point to a system where energy security, diversification of supply, and reduced dependence on imported fuels become primary policy objectives. Even if current tensions ease, these shifts are unlikely to reverse and will continue to reshape both feedstock flows and fuel markets.