Geopolitics Jolts Gasoil, But Biofuels Markets Stay Grounded

Markets were jolted overnight by the start of open conflict between Israel and Iran. Gasoil surged sharply, with ICE gasoil jumping more than one full standard deviation to $688/mt. As expected, BOGO moved lower in parallel, dropping to +378. While it is difficult to predict where markets will go from here, history suggests strong gasoil tends to underpin biodiesel demand, particularly in Europe where diesel demand remains structurally strong.

In the U.S., the latest WASDE report added to the picture of global soy abundance. World soybean ending stocks for 2025/26 were raised to 125.3 million mt, with Brazil’s crop size increased to 175 million mt, while Argentina’s was lowered to 48.5 million mt. Perhaps most notably, Brazil’s 2024/25 soybean ending stocks were doubled to nearly 5 million mt. With an early U.S. crop going into the hot season, there is no visible shortage of oilseeds for now.

Europe’s biodiesel spot market remained active ahead of the weekend. FAME 0 was steady at $1,346/mt, while UCOME rose to a six-week high at $1,434/mt. Strong gasoil pricing is helping underpin biodiesel demand. UFOP has flagged that drought in Australia could sharply reduce the upcoming 2025/26 canola harvest, which is a key source of EU imports from January 2026 onward. For now, this is perhaps not an immediate concern, as the EU’s own rapeseed crop still looks very good — but forward supply risks are starting to appear on the horizon.

On the SAF front, European market behavior remains uneven. Many distributors are reportedly achieving compliance not through physical SAF blending, but by charging airlines a regulatory cost uplift while delivering conventional jet fuel. At the same time, the well-known co-processing loophole under RED III mass balance continues to allow fossil refineries to claim SAF credits with very limited true SAF content. While efforts to improve traceability via a European book-and-claim system are underway, concerns about fraud risks remain. In this environment, we should expect the spread between HVO and SAF to widen — as real, dedicated SAF barrels should logically trade at a discount when much of "compliance" is being met without actual SAF delivery.

In the U.S., the White House has reportedly approved the new RVOs (Renewable Volume Obligations) and sent them back to the EPA for execution. Notably, there is radio silence on SREs (Small Refinery Exemptions), raising the possibility that an RVO announcement may be made public soon, while any SRE approvals might follow quietly. The drop in D4 RINs to 1.00 reflects a very cautious market tone — traders appear wary that the RVO announcement could be accompanied, perhaps silently, by SRE approvals. Meanwhile, margins are improving as ULSD prices rise, and the "big beautiful bill" remains bogged down in Congressional negotiations.

Asian markets remain well supplied. Malaysian palm oil and POME are stable, and UCO prices in China and Southeast Asia eased slightly this week. The abundant soybean and palm complex will continue to anchor global vegetable oil markets — even as geopolitical risks have clearly returned to the forefront of traders’ minds. Looking ahead, UCO prices could face further pressure as more countries — notably Indonesia — are now actively exporting pre-treated UCO (P-UCO), bypassing prior UCO export prohibitions. This is quietly increasing available supply to global markets and could weigh on UCO pricing going forward.