Gasoil Cracks, Soy Contango Builds, ARAG Springs Back to Life

The diesel market finally cracked with ICE gasoil backwardation easing sharply, the Dec/Apr spread retreating from its recent highs and removing one of the key supports under biodiesel flat prices, while the soyoil forward curve slipped further into contango as Z/N widened and bean oil was repriced against abundant South American supply, weak U.S. export inspections, and the continued absence of China demand. The simultaneous weakening of gasoil and palm oil defined the day: BOGO for January surged to about +501, more than a full standard deviation move, and BOPO pushed toward +165 not because bean oil strengthened but because diesel and palm weakened together. India’s washouts of crude palm oil and soybean oil this week underscored how soft nearby vegoil demand truly is, with CPO washes around $1,095 CFR WCI and SBO washes near $1,160–1,170 CFR WCI as domestic prices and cheaper palm rendered earlier purchases uneconomic. November data show India pivoting decisively back toward palm oil, with imports rising to roughly 630 kt while soyoil and sunflower oil fell sharply, adding further downward pressure to SBO and SFO structures. Palm’s softness was visible in Indonesian FOB levels around $1,055–1,065 and in a still-heavy olein curve despite modest support from Dalian.

Dec/Jul Soyoil

Against this backdrop, the ARAG barge window was notably active today, in contrast to the hesitancy seen in the paper market. Fresh trades across RME, FAME0, UCOME, and HVO Class II highlighted that real molecules are still moving even as forward hedging appetite remains suppressed. Replacement risk has fallen with the easing in gasoil backwardation, and physical buyers appeared more willing to secure prompt cover at current flat prices than paper traders were to extend risk forward. RME traded around $1,445/mt, FAME0 near $1,311/mt, UCOME about $1,467/mt, and HVO Class II roughly $2,566/mt, levels that remain remarkably sticky relative to the diesel sell-off and reflect the persistent tightness in compliant waste-based feedstocks. RME/FAME spreads stayed wide near $135/mt and UCOME/FAME held closer to $156/mt, coherent with elevated premiums for low-CI materials. By contrast, the first two days of week 49 showed a materially lower pace of participation in European biodiesel paper relative to recent weeks. While week 49 is incomplete and cannot be compared numerically to a full week, the very early slowdown is clear: traders are cautious, waiting for policy direction, and unwilling to commit forward even as prompt physical activity improves. This divergence—active window, hesitant paper—has become a hallmark of markets where fundamentals are shifting rapidly and policy uncertainty dominates.

European Biodiesel Paper

In the U.S., bean oil continued to be driven more by macro sentiment than by intrinsic fundamentals. Export inspections remain at an 18-year low with China essentially absent from the ledger, and the U.S. soybean export pace remains well behind requirements while Brazil continues to dominate global pricing. Paranaguá soyoil indications at around –560 / –660 for Apr/May confirmed that Brazil is again setting the marginal tone for Q1–Q2 flows. Meanwhile, Washington added its own volatility: U.S. Agriculture Secretary Brooke Rollins signaled a new “bridge payment” package for farmers to be unveiled next week, intended as temporary relief while broader trade and support programs are finalized. Such measures help sustain U.S. acreage even when prices weaken, reinforcing longer-term supply pressure on vegoils. The EPA’s continued absence from its own RFS and 45Z deadlines has kept the market guessing and is increasingly interpreted as a factor that will push obligated parties toward higher D4 RIN usage once the new rules eventually land. This dynamic has given a slow upward lift to RIN prices, with D4 Dec25 moving near $1.09 and Dec26 toward $1.18, supporting BOGO on the margins even though the headline move in BOGO is almost entirely due to diesel weakness rather than any tightening in bean oil. EIA feedstock data still point to persistent under-usage of UCO and tallow, confirming that waste-based feedstock availability remains the limiting factor.

South America and Asia continued to exert downward pressure on vegetable oils. Palm remained weighed down by sluggish Malaysian exports and India’s aggressive washouts, while Brazil’s vegoil complex continued to discount through Q1 as crushers defend margins against what is shaping up to be another record soybean crop. Global oilseed supply prospects also weighed on deferred values: the latest IGC projection placed global rapeseed acreage at 44.1 million hectares for 2026/27, up from 43.9 Mha in 2025/26, with steady or expanding acreage across India, China, the EU-27, Canada, and Australia, reinforcing comfortable long-term supply expectations and helping maintain forward vegoil contango.

Overlaying all of this was Europe’s tightening policy environment. RED III continues to raise advanced-biofuel obligations at a time when the market has the least confidence in securing sufficient sustainable feedstocks to meet them. New Concawe modeling projected structurally inadequate waste and residue-based feedstock availability under current collection rates and sustainability criteria, with deficits stretching well into the 2030s and 2040s. This structural uncertainty is already embedded in today’s prices: UCOME blending remains insufficient relative to RED III trajectories; HVO Class II premiums remain elevated despite weaker gasoil because compliant feedstock availability rather than diesel demand is the real constraint; and fragmented national implementation across the EU adds further uncertainty to forward structures. The slowing participation in early week-49 paper trading reflects these realities as much as immediate market volatility.

Taken together, today’s biodiesel market is defined by a sharp easing in diesel backwardation, a deepening of vegoil contango, strong prompt physical activity in the ARAG window, collapsing South American FOB differentials, India’s pivot back toward palm, incremental D4 firmness driven by EPA delays, and a RED III trajectory that is increasingly out of sync with physical feedstock development. The result is a market where prompt molecules still move, but forward hedging remains subdued, and traders must navigate both rapidly shifting fundamentals and a rising policy uncertainty premium on both sides of the Atlantic.