Margin Squeeze Deepens as Gasoil Breaks $600—Market Copes with Diverging Biodiesel Signals

ICE Gasoil futures plunged below $600/mt today, extending a month-long decline now totaling over $70/mt. The gasoil curve continues to collapse despite tight crude spreads, highlighting the weak middle distillate demand. This persistent sell-off not only drags on the BOGO and POGO spreads—now at $472 and $310 respectively—but also exposes how sensitive the biodiesel margin structure remains to underlying fossil benchmarks. The July screen biodiesel margin, calculated against expiring May heating oil, is now -40 c/gal, underscoring continued financial pressure on U.S. renewable diesel and FAME producers.

In ARAG, physical activity was robust, especially in FAME 0 (F0), which settled at $1,288/mt—steady versus late March but at a significantly higher premium of +$683 over gasoil, up from +$620 just a week ago. UCOME, meanwhile, saw a $40/mt pullback from April highs to $1,464/mt, with the premium over ICE gasoil at +$860. The compression in outright values and expansion in premiums reflect how producers are sustaining margins by widening basis trades rather than relying on outright gains. That said, UCOME’s softening spot trend despite high premiums indicates possible saturation in certain blending mandates or supply exceeding demand.

Q1 refinery earnings continue to flash warning signs. The much-anticipated results from Phillips 66's Rodeo facility underwhelmed, echoing earlier poor showings from Neste and Valero. Rodeo’s performance comes ahead of Marathon’s May 6 report, where traders will scrutinize operations at the >700 million gal/year Martinez complex. Any sign of continued underperformance could affect the forward hedging behavior in RD and SAF markets, where recent optimism (e.g., new SAF capacity in Thailand) belies softening physical spot prices—HEFA SAF fell by $21.52/t yesterday settling at fp $1770/mt..

Feedstock prices are diverging geographically and by type. European used cooking oil (UCO) ex-works ARA dropped by €15/t to €1,045-1,055/t, tracking lower UCOME and rumors of increased volumes from east of Suez. Tallow and POME values are also under pressure in Europe, while Australian tallow saw a sharp $60/t increase due to stronger tender demand. In Asia, both Chinese and Southeast Asian UCO markets remain relatively stable, although collection costs have eased slightly. However, trading volumes are expected to decline further as Chinese markets enter the Labor Day holiday from May 1 through May 6, which will dampen buying interest and mute pricing signals out of East Asia.

The market narrative is clearly turning. What began as margin compression driven by feedstock inflation is now evolving into a broader structural stress tied to overcapacity, regulatory uncertainty, and declining fossil baselines. Unless the EPA announces an aggressive RVO bump soon—or Europe moves to tighten compliance—the industry may remain in a defensive posture through Q2.