May Tightness Emerges as Constrained Barrels Fail to Arrive

ICE gasoil is trading at $1311/mt, up $12.5 on the day and now only $89 below the April high near $1400. The structure remains extremely tight with May to December backwardation near $375/mt up 1230% in last 3 months, which continues to signal immediate scarcity. This is not a flat price story. The curve shows that prompt barrels remain significantly underpriced relative to forward supply.

The key shift is timing. April disruptions are now translating into May tightness. Estimates indicate cumulative forfeited production of roughly 1.5 billion barrels even under an immediate normalization scenario. Monthly losses peaked around 14 mb/d in April and May before tapering, but those barrels are not recoverable in the near term. The system is now absorbing that loss.

Shipping data confirms the friction. Of 25 Iranian tankers that departed in April, only one reached the Far East directly, while at least nine were redirected or seized. At the same time, Iraq has started routing fuel oil via truck into Syria for export. These are slower and less efficient flows, which increase delivery times and reduce effective supply reaching key markets.

Regional pricing reflects this imbalance. Singapore gasoil is down $18.7/bbl on the day to $161.5/bbl and jet fuel down $21.3/bbl to $168.3/bbl. In contrast, Northwest Europe jet remains firm at $1533/mt CIF while ICE gasoil continues to grind higher. This implies a spread of roughly $150 to $200/mt equivalent between Atlantic Basin and Asian pricing for middle distillates. The issue is not global supply. It is that barrels are not moving efficiently to where they are needed.

Refinery behavior is amplifying the tightening. U.S. jet fuel is trading above $4.02/gal in New York while heating oil is at $4.03/gal. Higher jet yields are reducing ULSD output, tightening diesel balances further. The system is reallocating the barrel toward jet at the expense of diesel, which reinforces the shortage in the distillate pool.

Biofuels are increasingly filling that gap. U.S. soybean oil consumption for biodiesel and renewable diesel has recovered to 978 million pounds per month, up from 576 million pounds in February 2025, but still 22.9 percent below the June 2024 peak of 1.27 billion pounds. This indicates that capacity exists and can return if margins improve - screen crush margins for RD are not great! Whilst conventional Biodiesel is looking good. This is the opposite of 2024. Food for Thought.

The forward requirement is significant. An additional 1.0 to 1.3 billion gallons of renewable diesel would require roughly 9.3 billion pounds of feedstock, with 3.75 to 4.7 billion pounds expected to come from soybean oil. At current soybean oil levels near 78 c/lb, equivalent to about $1720/mt, this represents a substantial call on feedstock markets that is not yet fully priced globally as US will inevitably pull Soyoil from SouthAmerica.

In Europe, pricing remains strong but margins are constrained. Month to date averages show FAME 0 at $1338/mt, RME at $1389/mt, UCOME at $1519/mt, and HVO near $2952/mt. Feedstock costs remain elevated with rapeseed oil around €1125/mt and soybean oil above €1160/mt. UCOME premiums over gasoil remain near $328/mt, indicating strong demand but limited margin expansion.

The paper market shows active but cautious positioning. European bio paper volumes peaked near 770 kt in week 13 and dropped to roughly 350 kt in week 14 before stabilizing. The composition is concentrated in FAME 0 and UCOME, with peak volumes around 265 kt and 270 kt respectively, suggesting hedging activity rather than outright directional conviction.

Palm oil introduces an additional constraint. April production increased 35.5 percent month on month, but Malaysia is moving to B15 starting June 1 with a pathway toward B20 and potentially B50. This will absorb part of the supply increase and limit downside pressure on palm prices, which are currently around $1175 to $1180/mt for nearby contracts.

The key takeaway is that May is not about new shocks. It is about lagged tightening. Barrels that were delayed, rerouted, or lost in April are now failing to arrive. With ICE gasoil already at $1311/mt and backwardation at $395/mt, the market does not need additional disruption to move higher. It only needs these constraints to persist for prices to grind toward the $1400 level with Biodiesel/RD to follow.