Gasoil Risk Rebuilds Biodiesel Support

Energy took back leadership today as the Gulf risk premium returned. Brent August traded at $93.94 per barrel, up $2.49, while WTI July reached $91.13, up $2.93. Heating oil July traded at $3.6401 per gallon, up 2.78%, and ICE gasoil July traded around $1,052 per mt. ICE gasoil June expires tomorrow, so the front spread needs to be read carefully. June/July closed at +$7 per mt, down from +$9.75, showing some expiry-related easing at the front. The more relevant forward signal is July/December, with July around $1,052.25 per mt and December around $934.50 per mt, leaving backwardation near $118 per mt. That is far below the panic backwardation seen earlier in the crisis, but today’s point is different. If the Gulf is moving back to a war footing, the curve has room to tighten again. A more pronounced return of gasoil backwardation would directly support biodiesel and renewable diesel, because both are now part of the marginal distillate supply stack rather than side markets.

Gasoil Jul/Dec

Strait of Hormuz vessel data shows that flows have already collapsed versus pre-war normal, even if crossings have not gone to zero. Before the war, crossings were closer to 130 vessels per day. Recent counts are mostly in single digits. More importantly, the balance of traffic appears skewed toward vessels trying to get out rather than come in. That is the key signal. The Gulf is still clearing barrels and vessels already inside the system, but fewer ships are willing to enter and reload. This means today’s export numbers may still benefit from earlier positioning, while future loadings become more fragile. Temporary offsets have worked so far, but they look increasingly stretched. US commercial crude stocks are draining fast, SPR flows to Europe are drying up, WCS diffs are strengthening, and the WTI Aframax arbitrage to NWE is shut. The Aframax prompt list tightened from 28 ships on May 19 to 11. At the same time, China remains passive, with refinery runs near 13 mb/d, imports close to recent lows and stockpiles large enough to delay fresh buying. That explains why flat price has not exploded. Demand weakness and temporary logistics offsets are masking a stressed physical system. If inbound Hormuz traffic keeps falling, or if insurance and chartering tighten further, gasoil backwardation has room to rebuild quickly from current levels.

The broader political backdrop is also hardening. The US announced sanctions against 11 people and entities, including China- and Hong Kong-based companies, for supporting Iranian weapons procurement. This matters because the conflict is no longer only about tankers and insurance. It is also moving back into sanctions, banking networks and procurement channels. Iran is also being pushed toward production restraint, with crude loadings near 260,000 b/d in May versus 1.85 mb/d before restrictions, while onshore inventories have risen by roughly 13 million barrels since mid-April and usable storage is estimated near 13.5 million barrels. For biodiesel and RD, the risk is simple: distillate does not need an actual shut-in to start repricing if the market begins to fear tighter prompt availability.

This matters because soybean oil is not behaving like a weak ag commodity. Chicago soybean oil July traded at 75.74 c/lb, up 0.83 c/lb, or 1.11%, while December closed near 71.21 c/lb, leaving July/December at 4.53 c/lb. The July/December soybean oil spread has been volatile, but the return toward 4.5 c/lb shows the front end remains uncomfortable. In $/mt terms, July soybean oil is now $1,669.76 per mt, up $18.30 on the day. Bean oil as a percentage of gasoil moved lower to 159.06%, down 1.93%, because gasoil outperformed. For biodiesel economics, that is helpful. For feedstock risk, it also shows soybean oil is still sticky.

The US biodiesel screen improved with energy and RIN support. The July renewable diesel screen moved to $0.5133 per gallon, up 6.13% on the day, while conventional biodiesel improved to $1.0270 per gallon, up 3.84%. Conventional biodiesel still screens roughly twice as attractive as RD on the visible July screen because the D4 RIN value matters and the feedstock penalty is lower. December 2026 D4 RINs were quoted at 2.438, up 0.309%, keeping the market close to the $2.40 to $2.50 danger zone. At these levels, the RFS remains expensive for obligated parties, but it is still giving a strong incentive to turn qualifying feedstock into D4 generation.

EPA’s E15 waiver extension adds a meaningful compliance valve. EPA extended the summertime E15 waiver through June 29, keeping a national 9% to 15% ethanol gasoline pool under a common 10 psi RVP standard for another 20-day window. This matters because ethanol and biomass-based diesel sit inside the same nested RFS compliance structure, even though their physical markets are different. The economics favor ethanol blending right now. July ethanol is trading around $1.9000 per gallon while July RBOB is near $3.1222 per gallon, leaving ethanol at a $1.2222 per gallon discount to gasoline. For obligated parties facing D4 RINs near $2.44, the rational response is to maximize ethanol blending wherever logistics and specifications allow before chasing more expensive biodiesel or renewable diesel compliance. That does not remove D4 demand, but it gives refiners a cheaper near-term compliance path and helps explain why EPA’s short-term flexibility matters.

Ethanol Discount to RBOB

In Europe, the NWE barge window stayed active and July delivery feedstock values give a clearer view of gross margins. FAME traded several times at $420 over gasoil, with the window average at $419 and flat price at $1,455.50 per mt using gasoil at $1,036.50 per mt. RME traded at $495 over gasoil, with flat price at $1,531.50 per mt. UCOME traded at $575, $570 and $610 over gasoil, with the window average at $585 and flat price at $1,621.50 per mt. HVO Class II traded at $1,350 to $1,360 over gasoil, with the window average at $1,355 and flat price at $2,860.50 per mt. On July feedstock replacement, UCOME remains the strongest margin: UCO cif ARA at $1,195 per mt gives a UCOME/UCO gross spread near $426.50 per mt, while UCO ex-works Netherlands at $1,135 per mt gives a spread near $486.50 per mt. FAME versus July Dutch soybean oil is also positive: soybean oil at €1,110 per mt equals about $1,280.61 per mt at EUR/USD 1.1537, giving FAME a gross spread near $174.89 per mt. RME is much tighter: July Dutch rapeseed oil at €1,295 per mt equals about $1,493.04 per mt, giving RME a gross spread near $38.46 per mt. The European margin signal is strongest in UCOME, positive in FAME, and much tighter in RME.

European soft oils confirm why this matters. Dutch soybean oil was quoted at €1,110 per mt for June and July, up €10 on the day, while German origin soybean oil was €1,145 per mt for June, also up €10. Dutch rapeseed oil was €1,400 per mt for June, up €10, but July was €1,295 per mt, leaving a steep nearby inverse. UCO cif ARA at $1,195 per mt remains much cheaper than July virgin oils on a replacement basis, which explains why UCOME margins remain much stronger than RME or FAME. EU sunflower oil for July/September was quoted at $1,510 per mt, up $285, while October/December was $1,410 per mt. The front of the European soft oil market remains tight enough to defend feedstock values, while the UCO route still carries the best biodiesel margin.

Palm oil is not giving the bearish answer either. CPO had weakened almost 5% over five days, but today the July USD palm screen was still around $1,144.50 per mt, with the 3-month move near +9.92%. BOPO remains wide at $542.01 per mt for July, up $18.30 on the day, while BOGO remains wide at $619.04 per mt even after falling $14.17. Cash CPO into India was reported around $1,225 CFR west coast India and $1,212.50 CFR east coast India for June/July shipment, while soybean oil offers into India were around $1,275 CFR west coast India for July and $1,268 to $1,270 for August/September. The spread is narrow enough to make soybean oil more competitive in India for some laycans, but this is not a collapse in global vegoil values.

The bearish counterweight remains China and macro demand. China soybean imports in May fell 15% year over year to 11.79 million mt, even though they were still 6% above the 5-year average. January to May soybean imports were near 37 million mt, down 0.4% year over year. China edible vegetable oil imports were 499,800 mt in May, up from 486,700 mt in April, with January to May arrivals at 2.93 million mt versus 2.49 million mt last year. Commercial stocks of palm oil, soybean oil and rapeseed oil reached 2.05 million mt, up 40,000 mt on the week. The market is therefore facing two opposing forces: weak Chinese consumer demand and rising stocks on one side, strong energy, RFS demand and biofuel margins on the other.

South America remains the release valve, but the arbitrage is still distorted. Brazil FOB Paranaguá soybean oil was indicated around -2,080 to -2,150 points under for late July, -2,000 to -2,200 for August/September, and -1,750 to -2,020 for OND. That means Brazil remains much cheaper than Chicago, but the US RFS island effect is still preventing global values from fully dragging US soybean oil lower. As long as D4 RINs stay near $2.44 and US conventional biodiesel screens above $1.00 per gallon, domestic feedstock demand remains strong enough to separate Chicago soybean oil from the global oilseed balance.

The soybean complex is trying to stabilize after fund liquidation, but the board still looks nervous. November soybeans are holding above the $11 area, with technical support near $11.05 if the market resumes its break. Soymeal remains weak, with July meal recently around $301.40 per short ton and down nearly 10% since May 28. Soybean oil is still the relative strength leg. That matters because crush margins stay supported when meal falls but oil remains bid. The soybean crush screen still shows strong nearby economics, and crushers should keep running hard if oil share remains high and biofuel demand keeps absorbing oil. oilshare is at 55%.

Oilshare

There is also an agricultural side issue to monitor. Mexico suspended most live US animal imports in coordination with USDA after five confirmed screwworm cases in the US since June 3, while Mexico has recorded more than 28,000 cases since late 2024. This is not a direct biodiesel story today, but it matters through livestock, feed demand and meal consumption. If animal movements become more restricted, meal demand assumptions need to be watched, especially with soymeal already weak and July meal near multi-month lows.

The main trading conclusion today is that energy has taken back leadership while the physical system remains under visible stress. Hormuz is not closed, but traffic has collapsed versus pre-war normal and the direction of travel suggests more ships are trying to leave than enter. If inbound traffic keeps falling, or if short oil positioning is forced to cover into a renewed war premium, gasoil backwardation has room to rebuild from current levels. That would lift biodiesel and RD through the distillate pool. At the same time, refiners have a clear incentive to maximize ethanol blending because ethanol is more than $1.20 per gallon cheaper than RBOB and remains nested inside the RFS. For traders, the key indicators remain gasoil structure, D4 RINs, the RBOB/ethanol spread and July/December soybean oil. Today, all four still point to a market where prompt biofuel feedstock demand remains alive, but compliance behavior may first lean toward the cheapest available RFS pathway.