Global Diesel Scramble: Biofuel Flows Rerouted as Policy Walls Harden

Europe remains at the center of fuel market tension as diesel inventories trend dangerously low across ARA hubs. A rare VLCC shipment of 2 million barrels of ULSD from Saudi Arabia to France—typically a crude route—highlights the severity of the supply crunch. Red Sea freight insecurity and curtailed Russian flows are forcing traders to redeploy large coated tankers for clean products. Meanwhile, biodiesel premiums remain firm, with FAME 0 trading at $630/t and RME at $665–668/t. However, physical price momentum is softening. HVO Class II has surged to $2,219.78/t fob ARA, supported by a strong bid stack and escalating gasoil. Yet despite months of trade discussions and the current US-EU deal, renewable diesel exports from the U.S. remain effectively blocked. Only the UK currently offers a viable destination, as the combination of RIN retirement obligations and EU countervailing duties against U.S. biodiesel and RD continues to prevent transatlantic flows into the European continent.

D4 RINs

Across the Atlantic, U.S. soybean oil futures remain elevated at around 56.5 cents per pound, but a widening disconnect with global physical markets is evident. Brazilian FOB Paranagua offers are trading 6 to 7 cents per pound under CBOT futures, reflecting broad international disinterest in U.S. soy oil and ample South American availability. The options market is signaling speculative tension, with nearly 40,000 open contracts in December soybean oil calls clustered between the 56 and 70 cent strikes, especially at 60 and 65. This positioning suggests a significant bet on policy upside—possibly tied to biofuel mandates or trade intervention. Yet domestic biofuel players remain cautious. D4 RINs trade at just 1.255 USD, reflecting skepticism around EPA mandate enforcement, especially with rumors that up to 3 billion RINs could be waived under small refinery exemptions. The September–December soybean oil futures spread has widened to +0.28¢/lb, its highest in months, signaling strong near-term buying interest—likely driven by immediate crush demand and short-covering ahead of the August WASDE. The structure reinforces the tightness in spot physical delivery, even as outer-month demand remains underwhelming. On the structural side, NOPA expansion continues, with Platinum Crush joining the association and pushing crush capacity to 98 percent coverage—a bullish long-term signal for soy-processing linked to renewable diesel and SAF growth.

Soyoil Sep-Dec25

In Asia, HVO pricing remains competitive, and trade flows are shifting. SK Energy successfully exported a second HVO cargo from Ulsan, South Korea, to Europe—capitalizing on the $200 to $250 per ton arbitrage spread versus ARA Class II HVO, even after adjusting for roughly $290 freight. South Korea has historically benefited from free trade agreements with both the U.S. and the EU, making it a key biodiesel supplier to the U.S. in past years. However, that corridor is now effectively shut. Recent policy shifts—especially the U.S. 45Z guidance requiring North American feedstocks, along with anti-dumping duties—mean Korean-origin HVO and biodiesel can no longer access the U.S. market. Europe remains the only viable destination, and even that route is partially constrained by tariffs. Nonetheless, Korean HVO is finding margin despite these headwinds, highlighting just how wide the arbitrage has become. Meanwhile, SAF remains comparatively weak at around $2,057 per ton fob ARA and is no longer tracking HVO premiums. Chinese producers, facing weak local SAF demand and high shipping costs, are instead benchmarking offers against European diesel cracks without closing trades. In feedstocks, palm oil values remain capped despite crude strength. Malaysian POME fob values hold at $1,065 to $1,085 per ton, as rival oils and slack biodiesel demand keep pressure on prices.

Market structure across regions continues to reflect tight prompt demand but softening outer months. ICE gasoil remains firmly backwardated, supported by diesel restocking efforts and export redirection. In Cyprus, June petroleum product sales rose 10.4 percent year-on-year, signaling improving southern Med demand. Yet even as margins on paper look wide—especially for UCOME and waste-based HVO—the actual viability of exports remains freight- and duty-sensitive. Asian-origin biofuels are gaining ground due to cost structure, but Europe’s fragmented RED III implementation keeps compliance risk high. Meanwhile, U.S. exports are paralyzed by their own regulatory framework, unable to retire RINs economically or achieve mutual recognition with European schemes.

As the market enters August, traders face a precarious blend of volatility, regulatory friction, and speculative crowding. The crowded soy oil options chain, the bifurcated diesel supply chain, and the SAF-HVO divergence all suggest that current pricing reflects structural imbalances rather than durable equilibrium. Until trade rules catch up with market signals—especially on RD eligibility, feedstock reciprocity, and RIN consistency—price anomalies and trade distortions will persist. For now, UCOME remains margin leader, SK’s HVO arbitrage is a signal flare, and the VLCC en route to France is a floating monument to diesel insecurity in a fractured global supply system.