Gasoil Tail Move Pulls Biodiesel Higher as HVO Holds the Top of the Barrel

ICE gasoil settled at 1,206.75, up 81.75 on the day. That is a move of more than 4%, beyond typical daily volatility even in stressed markets. The move is confirmed by structure, with front spreads widening again, which points to prompt tightness rather than macro positioning. Brent traded above 101 and WTI above 93, but products are clearly leading crude. Options markets are reinforcing the same message. ICE gasoil May calls still show large open interest at extreme strikes, with positioning at 1,750 and 2,000 with roughly 14 days to expiry. Implied volatility is above 140%. This indicates the market is still pricing tail risk and further upside rather than normalization.

Asia continues to set the tone. Singapore 10ppm rose to 171.9 per barrel, up 14.1, while jet fuel reached 189 in Singapore and 181 in Fujairah. Jet remains the tightest cut in the barrel. Gulf jet exports have collapsed from about 605,000 bpd to 127,000 bpd, a drop near 80%, with Kuwait down 97%. The region’s share of global jet supply has fallen from 32% to below 4%. Jet cracks are near 80 dollars per barrel. Refiners are maximizing middle distillates, directly supporting diesel and pulling the biofuel complex higher.

Europe reflects that stress. ULSD CIF NWE is back to 1,165.75, up 44 on the day, while barges are up 36 and continue to trade at premiums over ICE gasoil. Physical remains bid over paper, which is critical for biodiesel pricing as it defines replacement value.

In the ARA window, biodiesel is clearly anchored to diesel using fp versus front month ICE gasoil. With gasoil at 1,206.75, UCOME trading at 385 to 400 over implies fp between 1,592 and 1,607 per ton. FAME at 190 to 195 over implies fp around 1,397 to 1,402. RME near 260 over implies fp close to 1,467. HVO Class II sits in a different price bracket, with outright fp at 2,922.45 per ton versus 2,858.89 the prior day. This keeps HVO well above ester values and confirms that renewable diesel remains the most expensive product in the biofuel complex.

The critical change today is in relative pricing. Feedstocks are no longer leading. Diesel is. Dutch soyoil is around 1,140 to 1,160 EUR per ton and rapeseed oil around 1,125 to 1,155. These are firm, but not keeping pace with diesel. Front month BOGO collapsed by 82.6 to 382.8, down nearly 18% on the day. BOHO fell more than 12%. Bean oil as a percentage of gasoil dropped to 131.8% on the front month, down from 141.4% the prior day, with forward months at 149.9% and 156.9%. That compares to levels above 170% only weeks ago. At roughly 132%, bean oil is no longer pricing biodiesel. Diesel is setting the marginal value and pulling biodiesel with it.

That dynamic is supporting conventional biodiesel margins. Front month crush margins improved to about 0.79 dollars per gallon, up about 34% on the day. Renewable diesel margins are lower on a comparable basis, around 0.27 dollars per gallon versus 0.79 for conventional biodiesel. Even though HVO clears at much higher flat prices, its margin capture is structurally lower due to higher feedstock intensity and hydrogen costs. This divergence between conventional biodiesel and renewable diesel is now a central feature of the market.

In the US, D4 RINs are not confirming the move. Dec trades at 1.911, slightly lower on the day. This reinforces that the driver is global distillate tightness rather than domestic compliance signals, even as soybean oil above 71 cents per pound reflects strong underlying demand tied to RVO expectations.

At the same time, the US continues to export both diesel and jet fuel into an already tightening global system. US Gulf refiners are still supplying Europe and Latin America, effectively bridging the shortfall created by the collapse in Gulf exports. Those flows are continuing even as global balances tighten. The implication is that the US is exporting into strength while domestic supply has not yet fully adjusted. As shortages propagate west, the US becomes the next marginal balancing region, which increases the risk that the same tightening now visible in Asia and Europe will eventually be felt domestically.

Demand is now starting to respond. Airlines are cutting capacity due to jet scarcity. Asia to Europe routes are at risk of 30% to 50% reductions by June, and China to Japan capacity has already fallen sharply. Europe is following with Lufthansa planning to cancel about 20,000 flights, alongside reductions from other carriers. Around 19 of the top 20 global airlines have adjusted schedules. This is the first clear evidence that demand is reacting to supply constraints.

The system is moving from pure supply shock to a transition phase. Jet tightness has been pulling diesel higher through refinery optimization, which supports biodiesel pricing and margins. That remains the dominant force today and explains the magnitude of the gasoil move. At the same time, airline cuts signal that demand destruction is beginning. If that accelerates, the marginal pull on diesel will weaken.

For biodiesel and renewable diesel, the setup is clear. Biodiesel benefits from diesel-led pricing and improving relative economics versus feedstocks. Renewable diesel remains the highest priced product in the barrel but captures less margin due to its cost structure. The continuation of US exports into a tightening global market, combined with options markets still pricing extreme upside, suggests that the tightening cycle is not yet complete and is likely to extend further as shortages move west.