Recession Risk Emerges In FarEast Hits Oil, But Not Biofuel Costs

Today was an unusual session. Crude oil fell, gold fell, gasoil fell, and gasoline cracks improved. WTI July was down 3.33% at $88.26, Brent August was down 2.99% at $91.43, and ICE gasoil July was down 3.40% at $1,023.25/mt. Gold also fell 1.77% to $4,259.2. This is not the usual combination for a market trading pure geopolitical relief. It looks more like broad liquidation, helped by negotiation headlines, Saudi official selling price cuts, and visible signs of weaker refinery demand in Asia possibly raised by signs of weak consumer demand. Gasoil downtrend is visible having broken 20 day wdma but still much above 50 day and 200 day.

Saudi Arabia gave the market a demand signal, not a supply relief signal. Saudi cut its July Arab Light official selling price to Asia by $6/bbl, from a $15.50/bbl premium over Oman/Dubai in June to $9.50/bbl for July. Other Saudi grades sold to Asia were also cut by $6/bbl, while Northwest Europe and Mediterranean grades were cut by $10/bbl and US grades by $2/bbl. This does not mean Hormuz risk has disappeared. It means weaker refinery demand in Asia is offsetting part of the supply shock. China’s crude imports reportedly fell 29% in May to an eight-year low, while global oil demand was estimated down 4% to 5% in April, with weakness visible in China and Western Europe. The market sold crude today because demand destruction is becoming visible, not because the logistics problem has been solved.

What worries me is that the market may not simply be removing war premium. It may be starting to price demand destruction, with Asia as the first visible pressure point. Saudi Arabia’s $6/bbl cut to July Arab Light for Asia, China’s 29% drop in May crude imports to an eight-year low, and the estimated 4% to 5% fall in April global oil demand all point in the same direction. Hormuz risk remains, but weaker refinery demand in Asia and Western Europe is offsetting part of the supply shock. This is a different message from the one we saw in March and April. Back then, the market was pricing scarcity. Today, the market is asking whether high prices and disrupted trade flows are starting to create a recessionary demand response.

The problem for biodiesel and renewable diesel traders is direct. The selloff did not transmit cleanly into the feedstock complex. The July/December gasoil backwardation fell to $107.25/mt, down roughly 13% on the day, with July gasoil down $36.25/mt while December fell $20.25/mt. This is a clear easing in front-end distillate panic. At the same time, July/December soybean oil moved the other way, rising to 4.33 c/lb, up 0.48 c/lb or 12.47% on the day. July soybean oil closed at 74.91 c/lb, or $1,651/mt, while December closed at 70.58 c/lb, or $1,556/mt. Gasoil structure is relaxing while soybean oil structure is tightening.

This divergence is the key signal today. Bean oil expressed as a percentage of gasoil jumped to 161.39% for July, up 4.00% on the day, and BOGO widened to $628/mt, up $43.72/mt or 7.48%. BOPO remains extreme at $517/mt for July and $445/mt for September. Palm oil is not cheap enough to pull soybean oil down, and soybean oil is still trading like a protected US feedstock market. Brazil FOB Paranagua soybean oil remains offered around 2,000 to 2,150 points under Chicago for nearby slots, with July shown around -2,100 versus -2,200. This confirms the same point we have discussed for weeks: the US soybean oil futures market is disconnected from global vegetable oil values.

Palm is also not providing enough relief. August BMD CPO was recently at MYR 4,573/mt, helped by firmer energy, a weaker ringgit, and estimates showing Malaysia May production down 7.37% from April versus earlier expectations of a 4.5% to 4.9% decline. Cash CPO was still offered around $1,210/mt FOB Indonesia for June, while West Coast India soybean oil traded around $1,250/mt CFR for July-September and $1,255 to $1,260/mt CFR for August. Later indications showed BMD softer at 4,503, but CFR West India CPO was still around $1,229 to $1,239/mt for July, while CFR West India soybean oil was still around $1,255 to $1,265/mt for July. Those numbers remain firm enough to stop Chicago soybean oil from correcting, even with crude lower today.

This is brutal for biofuel margins. The RD screen crush fell 14.74% on the day to 48.32 c/gal for July, while the conventional biodiesel screen crush fell 7.49% to 98.89 c/gal. Even after the daily decline, conventional biodiesel remains much better than RD on the screen because of different feedstock economics and credit treatment, but the direction is clear. If diesel eases while soybean oil and RINs stay firm, producer margins compress. BOHO confirms this pressure, with July at $2.0721/gal, up 4.02% on the day.

D4 RINs remain the other source of stress. December D4 RINs were last around 2.435, up 0.845% on the day, and still close to levels creating acute balance sheet risk for obligated parties. The market is not trading D4 RINs like a normal hedge against diesel anymore. RINs usually help offset weaker diesel, but this inverse relationship is not working cleanly because the market is still pricing a structural D4 deficit. This is why the current setup creates anxiety for both sides of the trade. Refiners face a huge compliance liability, while biofuel producers still face high feedstock costs and volatile product values.

The E15 waiver story also matters because it touches the nested RIN structure. The current waiver window was expected to expire today, June 9, after the prior 20-day extension from May 21. If EPA extends the waiver again through another 20-day cycle, the gasoline pool keeps extra flexibility into summer driving season. This supports ethanol blending and keeps pressure on the broader RIN stack. It does not solve the D4 problem, but D6, D4, and the overall RFS compliance system do not trade in isolation.

On the physical European side, soft oils did not show relief in soybean oil. Dutch-origin soybean oil was unchanged at €1,100/mt for June, July, and August-October, and €1,110/mt for November and December. German-origin soybean oil was unchanged at €1,135/mt for June, €1,125/mt for July-August and September-October, and €1,130/mt for November-December. Rapeseed oil was mixed, with Dutch June up €20/mt to €1,390/mt, July down €10/mt to €1,290/mt, and August-October down €1/mt to €1,167/mt. Sunflower oil was the outlier, with July-September down $280/mt to $1,225/mt, while October-December was up $10/mt to $1,420/mt.

The ARA biofuel market stayed firm in both paper and physical terms. TFS showed June RME at $1,499/mt midpoint, July RME at $1,503/mt, June FAME 0 at $1,459/mt, July FAME 0 at $1,438/mt, June UCOME at $1,589/mt, and July UCOME at $1,548/mt. HVO remains in a different price category, with June HVO at $2,799/mt and July HVO at $2,763/mt. The AOM window was active as well, with UCOME trading mostly between $580/mt and $595/mt over gasoil, FAME trading between $400/mt and $430/mt, RME trading at $510/mt, and HVO Class II trading at $1,320/mt. Paper volume also stayed healthy, with 63 kt traded in HVO II, 44.5 kt in UCOME, 38 kt in FAME, 38 kt in RME/FAME, and 24 kt in RME. The ARA market is not collapsing with crude.

The jet fuel story remains relevant for SAF. Saudi jet fuel flows to Europe from Yanbu reached 118,000 to 140,000 bpd in the first week of June, compared with a 2026 monthly high of 77,000 bpd in January. Europe has also increased jet fuel imports from the US and Nigeria to around 200,000 bpd in May. This helps Europe plug part of the jet fuel gap, but it also confirms the trade flow map has changed. SAF does not trade in a vacuum. When conventional jet is rerouted through Yanbu, Nigeria, and the US, the SAF premium and mandate economics sit on top of a moving fossil jet baseline.

China is another piece of the puzzle. China imported 11.79 million mt of soybeans in May, equal to 433 million bushels, down 15% from last year but still above the monthly average and above expectations. Through the first eight months of 2025/26, total imports were up nearly 4% year on year but still below the 2022/23 record pace. China is still buying beans in size, but not US beans in a way which fixes the US soybean balance sheet. Until China returns to US soybeans, or US soybean oil loses its RFS-driven isolation premium, the soybean oil futures market remains vulnerable to sharp reversals once arbitrage pressure appears.

The broader mineral oil inventory picture is still not bearish. Visible oil inventories are falling toward operational stress levels, and one estimate shows inventories around 7.6 billion barrels by June, with an operational floor around 6.8 billion barrels if the conflict remains unresolved. Separately, the market is also talking about the need to replenish large volumes of crude and product inventories after the Hormuz disruption. This is why I would be careful interpreting today’s crude selloff as the end of the energy problem. The curve softened today, but the physical system still needs to rebuild inventories, reroute flows, and restore confidence in shipping.

The conclusion for biodiesel and renewable diesel is direct. Today’s market reduced front-end oil panic, but it did not reduce biofuel stress. Gasoil backwardation fell, crude sold off, and gold sold off, but D4 RINs stayed near 2.44, July soybean oil held near $1,651/mt, soybean oil backwardation widened, and BOGO jumped above $628/mt. A recessionary oil signal is not bullish for biofuels if it lowers diesel and gasoil revenue before it lowers feedstock and compliance costs. This is a margin squeeze where product value is weakening faster than input value. For traders, the key question is no longer only whether diesel remains tight. The key question is how long soybean oil and D4 RINs keep ignoring the easing in the diesel curve.