Gasoil Cracks Explode as EPA Uncertainty Deepens
- Henri Bardon
- Jul 21
- 3 min read
Diesel markets surged again today in response to renewed geopolitical tension, as the U.S. weighed secondary sanctions against Chinese and Indian firms trading in Russian oil. This sent the ICE gasoil market higher and pushed the screen heat crack to an unprecedented $38/bbl. This level of distillate strength is likely to impact European supply flows and underpins biodiesel premiums in the ARA barge market, where values held firm despite softer margins in soy-based blends.
In the ARA physical market, RME traded at $1,359.19/mt and FAME at $1,311.50/mt. Using Dutch-origin rapeseed oil at €1,030/mt and soybean oil at €1,135/mt, estimated gross margins stood at $154/mt for RME and barely positive for FAME. The spread between the two reached $47.69/mt, reflecting weak demand for soy-based methyl esters. UCOME remains the strongest performer, trading at $1,469/mt with a $157.50/mt premium to FAME. Rapeseed oil's competitive pricing—now at a €105/mt discount to soybean oil—continues to support RME’s position in the blending stack.
EU rapeseed imports in 2024/25 have exceeded 7.3 million tonnes, well ahead of the prior year’s 5.7 million. While Australia leads with 3.5 million tonnes, Ukraine maintains a strong second position at 2.4 million tonnes. This is due in part to Ukraine’s continued access to duty-free trade under the EU’s Autonomous Trade Measures (ATMs), currently in place through June 2026. However, EU lawmakers are now debating early phase-out options. If preferences are removed, the trade balance could shift in favor of Canadian or EU-grown seed, especially as demand from European oil mills tightens under RED III sustainability requirements.
Across the Atlantic, soybean oil has just triggered a bullish technical breakout. The 20-day moving average has crossed above the 200-day for the first time in nearly two years. At 56.07 cents/lb, soybean oil continues to attract strength from biofuel market demand. Meanwhile, BOPO has widened sharply to $243/mt—driven not only by firm SBO but by ongoing palm oil softness. This softness reflects structural weakness: foreign feedstocks such as palm, UCO, and tallow are now largely excluded from the U.S. 45Z program, which limits eligibility to North American-origin materials. As a result, feedstock demand outside the U.S. has collapsed, putting broad downward pressure on international vegoil values. BOGO remains firm at $499/mt, highlighting a persistent divergence in global feedstock pricing.
Despite modest support in D4 RINs—last seen at 1.235—the U.S. screen crush margin remains deeply negative at –33.97 c/gal. Independent biodiesel producers are being squeezed from both ends: elevated feedstock costs and continued policy ambiguity around 45Z monetization. While most major producers are registered with the IRS, crucial guidance on CI validation, stacking eligibility, and retroactive claims is still missing. Until final rules are published, discretionary blending will remain limited, especially outside state-mandated volumes.
EPA RIN data confirms that 2025 biomass-based diesel output is already lagging. Total RIN generation is sharply down year-to-date, especially from foreign producers. This aligns with the narrowing scope for imported volumes to qualify under 45Z. The market remains structurally bullish on RVOs, but policy risks around small refinery exemptions and tax credit administration are clouding the outlook.
Meanwhile, the EPA has announced a 23% workforce reduction—cutting more than 3,700 positions to save $750 million—including the complete elimination of its Office of Research and Development. These cuts raise serious concerns about the agency’s capacity to administer the Renewable Fuel Standard, evaluate SREs, and implement 45Z oversight. At a time when policy complexity is surging, such staffing reductions risk undermining market stability and delaying essential compliance infrastructure. For small and mid-sized producers, that risk is immediate and consequential.
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