Geopolitics Lifts Energy, Feedstocks Push Back

The year starts with geopolitics tightening rather than easing. USD RUB trades back above 80 and sits near 80.8 after dipping into the high 79s late last week. This level has historically aligned with rising geopolitical risk, not progress on Ukraine. Gold confirms the signal, trading near 4,453 per ounce, close to a one standard deviation move on the day. Energy markets are reacting accordingly. Heating oil futures are higher across the curve, with front months up around 2 percent, and heat crack margins have rebounded into the low 30s after spending much of Q4 below 25. This supports distillate flat price even as macro risk rises.

Stronger gasoil supports biodiesel, and ARAG window activity reflected this clearly. RME averaged near 1,441 per ton, FAME 0 around 1,293, and UCOME close to 1,401. HVO Class II traded near 2,669. Window participation remained active with Gasoil renewed strength. With January bean oil in delivery, traders shifted to March as the reference. March BOGO printed near plus 484 today and extends toward roughly plus 521 by July. This contango underpins forward biodiesel margins and explains continued producer selling and consumer coverage further out the curve.

The US market remains a contrast. D4 RINs traded near 1.15 to 1.18 per gallon today, up modestly from late December lows but still far from levels that would signal urgency. At these values, US biodiesel margins remain thin to negative for conventional producers even with new ILUC rules when screened against current soybean oil prices and flat diesel. The curve offers little relief, with forward D4s showing limited carry and no policy driven repricing yet. The absence of new guidance on RVOs or meaningful signals around 45Z implementation keeps the US market defensive. Stocks remain elevated, production has lagged last year’s pace, and the market continues to wait rather than lead.

Feedstocks remain the key swing factor globally. POGO, used as a proxy for UCO economics, trades near 375 despite Malaysian palm oil stocks approaching 3 million tons. Historically, Indonesia tends to hold close to double Malaysia’s level, implying stocks near 6 million tons. That stock profile argues against sustained feedstock tightness. From a technical perspective, POGO still shows an open gap between roughly 275 and 310, which signals downside risk if sentiment shifts. The persistence of elevated POGO levels alongside high stocks looks fragile rather than structural.

BOPO has moved back above plus 100, a level often seen as a natural equilibrium. Context matters. BOPO traded near minus 100 by mid March last year, a swing of roughly 200 points within one year. Palm fundamentals argue against sustained strength from here. Large Southeast Asian stocks require price discounting to clear. On the soybean side, South America adds pressure. Brazil faces a large harvest, and crushing must continue even if exports to China slow under the US China trade framework. Argentina continues to crush around 3.8 to 4.2 million tons per month. That oil supply has to clear through domestic demand or price.

Policy headroom in South America is more limited than often assumed. Brazil is already at B15. The planned move to B16 has been postponed to avoid pressure on diesel prices and inflation. Moving from B15 to B16 would absorb roughly 400 to 450 thousand tons of additional soy oil per year, or about 100 to 115 thousand tons per quarter. This is supportive at the margin but insufficient to offset harvest driven surplus. Argentina faces a tougher tradeoff. Higher mandates support crushing but reduce export FX receipts, which limits policy flexibility. Absent a reinstated B16 in Brazil or a meaningful mandate hike in Argentina, surplus bean oil during the March to May harvest window must clear through price.

SAF continues to gain policy momentum in Asia. Thailand announced a 1 percent SAF mandate starting January 2026, joining Singapore, Japan, and Korea. Asia is moving steadily toward a large SAF market. Using conservative assumptions, Japan at a 10 percent blend implies roughly 5 million tons of SAF demand by the early 2030s. Europe’s 6 percent mandate in 2030 equates to about 6.5 to 7 million tons when including the UK. Adding current Asian mandates yields a combined lower bound near 8.5 to 9 million tons by 2030, with upside beyond that as blend rates increase.

Capacity is not the constraint. Europe and Asia already hold sufficient announced and operating SAF capacity to meet this lower bound. Pricing reflects this reality. SAF today trades near 2,299 per ton, while HVO Class II trades around 2,669. SAF therefore trades at a discount of roughly 370 per ton despite sharing plants and feedstock pools with HVO. Using current UCO values implied by POGO, plus hydrogen, utilities, logistics, certification, and yield losses, SAF breakeven screens near 1,900 to 1,920 per ton. At current prices, margins remain close to 400 per ton, which points to comfort rather than scarcity.

Across markets, the message is consistent. Geopolitics supports energy and biodiesel demand in Europe, but feedstocks are not tight and US policy remains a headwind. SAF pricing already embeds a policy premium despite ample capacity and healthy margins. If palm leads lower or Brazilian harvest pressure weighs on bean oil in March, BOPO, UCO, and SAF economics face downside risk. The market continues to price future mandates more aggressively than near term physical constraints, and that imbalance is where risk builds as the year unfolds.