Heat Crack Ignites as Dollar Sinks

Markets were jolted today by two contrasting macro signals: the heating oil crack surged to 34.13—its highest level in over a year—while the U.S. Dollar Index slid sharply to 96.72, breaking below key multi-year support. This combination signals robust middle distillate demand amid declining refinery yields, at a time when dollar weakness is likely to lift all commodity-linked trade flows, including vegetable oils and biofuels.

DXY index

Heat Crack Margin

In the ARAG barge market, biodiesel trading remained active. RME traded at $1,442.63/mt, FAME 0 at $1,343.88/mt, and UCOME firmed to $1,460.13/mt, yielding a UCOME/F0 spread of $116/mt and a slightly narrowed RME/F0 spread at just under $100/mt. Despite the firm biodiesel premiums, margins are still favorable across the board thanks to the sharp rally in gasoil and relatively subdued feedstock prices.

On the soft oil front, rapeseed oil saw a sharp €25–27/mt drop across delivery months, while soybean oil was unchanged. This widened the August discount of RSO vs. SBO to €92/mt. Adding to the bearish tone, Paranagua FOB soybean oil was reportedly bid at -620 under August CBOT, confirming weakening South American basis and potentially paving the way for U.S. soybean oil futures to fill downside chart gaps. With RME pricing now competitive on a GHG-adjusted basis, market participants should expect a seasonal switch back to rapeseed-based biodiesel in Q3, barring a reversal in feedstock spreads.

UCO remains remarkably firm in Europe, with pricing near $1200/mt ex-works, supporting robust gross margins for UCOME. Interestingly, UCOME production continues to outcompete double-counting tickets in Germany, which are priced above marginal abatement values. This underscores the structural cost advantage of actual waste-based biodiesel production over paper-based compliance.

From a policy standpoint, only Brazil made noise today by officially raising its ethanol blend in gasoline from 27% to 30% starting August 1, while also bumping its biodiesel blend to 15%. The ethanol move is more consequential, likely absorbing a portion of Brazil’s record corn crop. The biodiesel adjustment, mostly filled with tallow, is unlikely to tighten soy oil availability. Meanwhile, in the U.S., the lack of clarity on SREs continues to cloud RINs dynamics. D4 RINs at 1.147 suggest little bullish conviction, and many suspect SREs are being cleared quietly in exchange for higher RVOs—a tactic not unfamiliar to veterans of the 2018 cycle.