HVO Short Covering Stands Out as Year End Mechanics Drive Biofuels: Paper unwinds pressure ester barges, RINs confirm US slowdown, Black Sea risk reshapes Asia oil flows

European biodiesel markets stayed active into year end, with paper and physical moving together through mechanical adjustment rather than directional conviction. European paper volume in week 51 reached about 1.02 million metric tons, the highest since week 47 at the end of November near 1.31 million. The increase reflects hedge unwinds and balance sheet cleanup ahead of January, not new length.

Paper flow centered on UCOME versus RME. Over the past six weeks, the UCOME discount to RME compressed from roughly 35 to 45 dollars per metric ton to near flat. By today, both RME and UCOME aligned close to FAME0, with RME minus FAME0 near 120 and UCOME minus FAME0 near 117. This convergence of UCOME/RME reflects relative reweighting between crop based and waste based esters rather than a reduction in overall exposure.

The physical ARAG window moved in line with this hedge unwind. When paper hedges come off, the physical leg also needs to be flattened, which brings barges into the window and weakens spot pricing even if underlying demand is unchanged. On Dec 22, RME barges traded at fp 1416.50, UCOME at fp 1413.50, and FAME0 at fp 1296.50. The spot relationships stayed tight, with RME minus UCOME at 3.00, confirming that pressure was flow driven rather than product specific.

Margins remain supportive despite softer barge prints. RME gross margins today are about 160 dollars per metric ton, which remains healthy and does not point to forced selling or production stress.

HVO was the clear outlier. HVO Class II traded at fp 2603, up 43.43 on the day. Versus UCOME at fp 1413.50, this implies an outright differential close to 1200 dollars per metric ton. The buying was dominated by refining interests rather than trading activity, and the pattern fits classic short covering rather than discretionary length building. The magnitude of the move was significant and isolated, not a broad based repricing of renewable margins.

Vegetable oil markets carried most of the global price discussion. Chicago soybeans rebounded from two month lows, with the front contract near 10.50 per bushel after last week’s selloff. China imported no US soybeans for a third consecutive month in November, which kept sentiment capped, even as trade sources estimate more than 7 million metric tons of US beans have been booked since the October truce. The move reflects stabilization after liquidation rather than a demand led shift. These forced China US purchase are not good for Brazil especially as new crop is doing well (178 mil MT) and only 75% of required exports sales for Feb are completed.

Asia added an important structural layer. Sunflower oil continues to face supply and logistics pressure tied to rising geopolitical tension around the Black Sea. Export reliability has deteriorated and risk premia are rising, influencing buyer behavior even before flat prices fully adjust.

India sits at the center of this shift. In the Indian market, sunflower oil and soy oil belong to the same higher end consumption category, while palm oil remains the lower cost mass consumption oil. As sunflower oil reliability declines, India is likely to increase soy oil imports, including flows from China, to satisfy premium demand rather than switch down into palm oil.

Energy markets offered little new signal. Front ICE gasoil settled near 621 dollars per metric ton, with the Feb to Jul structure still backwardated by about 19.50. Gasoil remains pinned near the 50 week moving average and did not provide fresh direction for biofuel margins.

The spread curve explains why storage remains unattractive. BOGO holds near 445 to 450. The curve shows contango to July of about minus 42.35, but diesel backwardation of roughly plus 19.50 over the same period erodes much of that carry once the diesel leg and costs are netted. With ULSD cracks near 32 dollars per barrel and still trending lower, the adjustment continues to show up through throughput cuts, hedge management, and relative positioning rather than tank filling.

US RINs reinforce the same adjustment story. Year to date D4 RIN generation stands near 6.44 billion credits, about 22 percent below last year. November generation fell 9.6 percent month on month and nearly 18 percent year on year. Renewable diesel utilization dropped below 66 percent of nameplate capacity, while biodiesel fell below 53. Imports failed to offset the slowdown.

Taken together, today’s market reflects year end mechanics layered on top of shifting global oil flows. Europe adjusted through paper and window dynamics, the US through run rates and credits, and Asia through rising geopolitical pressure on Black Sea sunflower oil. The clearest signal on the day was HVO, fp 2603, up 43.43, driven by refiner short covering rather than a change in underlying demand.