Gasoil Expiry Looms as Crush Margins Peak and Tariffs Roil Global Vegoil Markets

With July off the board, the entire biodiesel market has already transitioned to August trading. BOGO and BOHO values have softened, with BOGO now up just 4.8% over the last three months. In contrast, ICE gasoil continues to show strength, with the July contract up 36.27% in that period. The July/August backwardation in ARAG has surged past $75/mt, and with the July contract expiring tomorrow amid tight regional supply, traders are bracing for potential fireworks in the barge market.

Soybean oil, still up 14.68% over the same three-month stretch, continues to draw strength more from energy prices than agricultural fundamentals. U.S. soybean crops are thriving — nearly 70% rated good to excellent — pointing toward a bumper harvest. Meanwhile, December soybean crush margins have soared to $2/bushel or $73.49/mt, levels that should encourage crushers to lock in forward profits. However, this does little to lift front-end demand or offset oversupply risks.

US Soy crop conditions

Physical ARAG barge activity was muted yesterday, with no reported trades in RME or FAME 0. Still, paper market volumes were robust in weeks 24 and 25, with UCOME clearing nearly 500 kt each week. RME also surged to 341 kt, outpacing FAME 0’s 246 kt. However, the rise in paper trading may be masking underlying imbalances — for instance, FAME 0 paper is trading at +596 over ICE gasoil, while BOGO sits at just +474. That $200/mt premium far exceeds standard transformation costs and suggests traders may be avoiding physical exposure despite a deeply backwardated gasoil structure. This likely reflects doubts about true end-user demand, a preference for liquidity and risk management, or tightness in logistics and financing capacity.

Globally, bearish sentiment prevails in non-U.S. vegoils, exacerbated by the U.S. decision to impose 32% tariffs on Indonesian and 25% on Malaysia starting August 1. This has stunned traders and triggered a short-term rise in palm oil flat prices. September CPO futures remain high at $980/mt, sustaining a POGO of +$300/mt — a spread that looks increasingly unsustainable into Q3. The Indonesian Palm Oil Association estimates that exports to the U.S. could fall by 15–20%, potentially ceding market share to Malaysia or alternative feedstocks.

Fundamentally, the oilseed complex is oversupplied outside the U.S., with China’s vegoil inventories rising to 2.25 million tonnes last week. In a momentous development, China has also begun buying Argentine soymeal — an unusual move suggesting tight crushing margins or a strategic diversification away from U.S. soybeans. Meanwhile, at the EPA’s public hearing on July 8, the Iowa Biodiesel Board strongly urged the agency to increase RFS volumes for biomass-based diesel, warning that artificial “constraints” threaten domestic production and investment. Still, D4 RINs remain subdued at 1.160, weighed down by persistent uncertainty over Small Refinery Exemptions (SREs). Notably absent from the hearing were strong voices opposing the discriminatory impact of the proposed 45Z rules, which exclude fuels produced with foreign feedstocks. This silent acquiescence underscores the geopolitical shift in U.S. policy, effectively sidelining foreign producers through regulation. Even as U.S. soy crush margins soar, the futures market is increasingly disconnected from physical values — with Paranagua Sep FOB bids for soyoil at -600 points to futures — a reminder that paper optimism is not translating into global demand.