Market Drift or Structural Shift? Pressure Mounts Across the Biofuels Complex

ICE gasoil futures have broken sharply lower, slipping by 4%—a full standard deviation—on the back of mounting bearish sentiment in broader energy markets. This has spilled into biodiesel benchmarks in the ARA region, where spot values declined nearly $30/t. Rapeseed methyl ester (RME) dropped on the day, but its FOB ARAG premium remains elevated at +$660/t with a flat price (fp) of $1,238/t. FAME 0°C (F0) is trading in similar fashion, with a +$645/t premium over ICE gasoil and a flat price of $1,224/t.

The notable outlier is UCOME, which is now trading below its monthly average. UCOME's FOB ARAG premium is assessed at +$818/t, yet its flat price has declined to $1,396/t. The weakness in UCOME can be traced to declining values for upstream UCO across Europe, where support is waning. This trend signals ongoing feedstock fragility and soft downstream demand. Traders will be watching closely to see if any buying interest returns at these discounted levels or if premiums widen further to compensate for the risk. The gasoil chart has turned ugly, breaking support levels.

At the top of the value chain, hydrotreated vegetable oil (HVO) and sustainable aviation fuel (SAF) are commanding a significant premium. Both SAF and HVO Class IV are now trading at $1,785/t flat, representing a roughly $400/t premium over UCOME values. The differential between advanced renewable diesel products and first-generation biodiesel has widened, especially as regulatory pressure mounts. Market chatter suggests that the EU's initial misinformation about ISCC certification has escalated into a formal traceability probe in the UK, potentially curbing HVO imports to the UK from the US and China.

In the US, the public comment period on the EPA’s 45Z guidance is drawing to a close on thursday, creating an air of anticipation around how incentives may shift. Meanwhile, the Trump administration has intensified its stance against carbon taxes, threatening litigation against states that include such mechanisms in fuel pricing. This could have a ripple effect across Low Carbon Fuel Standard (LCFS) markets, increasing volatility. Despite D4 RINs holding at $1.055, US biodiesel producers remain in the red with current margins estimated at -$0.27/gal and limited ability to hedge down the curve due to contango.

One surprising resilience story comes from bean oil, which is holding up well against the energy complex downturn. The bean oil-to-gasoil (BOGO) ratio has reached 1.7x—levels last seen in 2023 under markedly different conditions. Back then, surging demand for soyoil was the driver; today, it's more about relative strength amid serious weakness in energy. This decoupling presents both risks and opportunities for biodiesel producers, depending on their hedge strategy and feedstock flexibility. The market is clearly in flux, and traders will need to stay nimble as policy and fundamentals continue to shift.