Heat Crack Strength Holds Gasoil Market Firm as Logistics Fray in Brazil and Europe

The European gasoil market continues to exhibit a strong backwardation structure, with the August/December spread holding at +$50/mt. This is underpinned by an exceptionally firm heat crack margin, which sits at $33.50/barrel, a clear sign of robust spot distillate demand. These dynamics are keeping biodiesel physical barge markets well supported in the Amsterdam-Rotterdam-Antwerp (ARAG) region. FAME 0 barges traded at a solid +611 over ICE gasoil, while RME fetched a $30/mt premium to FAME. However, gross margins are diverging sharply: RME margins remain healthy at $139/mt, but FAME gross margins have collapsed to under $10/mt, reinforcing market preferences for premium grades.

Heat Crack

UCOME remains the most profitable of the core biodiesel grades, printing at $1,457/mt flat price in ARAG with gross margins near $200/mt. The spread to FAME has ballooned to $143/mt, maintaining strong market interest in waste-based product. The broader spread between physical and forward pricing reflects a market that remains tight in the front months due to constrained spot availability and stable demand. This tightness continues despite slight softening in soft oil prices—sunflower oil, for instance, fell back to $1,227.50/mt for Oct/Dec delivery in North European ports, down $12.50 on the day.

Logistical strain in Brazil is adding a new layer of uncertainty to agricultural markets. AgRural reports that Brazil’s second corn harvest is now 40% complete, up from 28% the week prior, but still well behind the 74% level seen this time last year. This compressed harvest window is exacerbating congestion on major highways such as BR-277, with truck delays up 15% week-on-week and queues outside Paranagua port reportedly stretching 5 km. Waiting times for bulk carriers at Paranagua have jumped to 8–10 days. Meanwhile, the recent WASDE report revised Brazil’s corn crop upward, further pressuring futures pricing, which is now hanging by a thread just above $4.00/bushel which is not good for corn producers but great for Ethanol production. These frictions threaten not only corn and soymeal flows but may soon disrupt vegetable oil and biodiesel feedstock trade routes.

Europe is also grappling with mounting transportation issues, as Rhine River navigation remains severely constrained due to heatwave-induced drought. At Duisburg and Kaub, ship loading capacities are restricted to 40–50% and ~50%, respectively. While light rainfall has marginally improved overall conditions, cargo is still being delivered via more numerous but less-loaded vessels, increasing transport costs. Surcharges remain in effect, particularly impacting feedstock deliveries and chemical logistics into inland refining hubs.

Rhine river navigation

In Argentina, the government is responding to inflationary pressures and industry concerns by increasing the fixed prices for ethanol and biodiesel used under the national blending mandates of 12% and 7.5%, respectively. While these adjustments offer short-term relief to domestic producers, there is no indication that the mandates themselves will be raised. Elsewhere in the Americas, U.S. D4 RINs have edged up to 1.20, offering slight margin improvement. Even so, screen margins remain negative by approximately 33 cents per gallon, continuing to strain standalone U.S. producers. Meanwhile, a looming 35% U.S. tariff on Canadian imports effective August 1 adds another layer of uncertainty—especially for canola-based renewable diesel pathways—while the industry still awaits post-recess guidance on the 45Z tax credit.