Recession Signals Emerge as Gasoil and Soyoil Diverge Sharply

Markets today display broad weakness, particularly in energy sectors, exacerbated by geopolitical uncertainties that have sent gold prices surging toward $3,320 per ounce. ICE Gasoil, a pivotal reference for biodiesel margins, is trading lower at $583 per metric ton. Concurrently, soybean oil markets have weakened, with the May BOGO spread expanding slightly to +481, reflecting these downward pressures.

Interestingly, the forward curve presents mixed signals. The ICE gasoil May/Dec backwardation stands at +$10 per metric ton, with the majority of that, +$8.75, manifesting through September. Notably, the ICE gasoil spread for Dec 2025/Dec 2026 has moved into contango. This forward contango aligns with Brent crude's Sep/Dec 2025 spread, also indicating a slight contango. These movements suggest the market is pricing in a possible recession towards the end of the year and into 2026, anticipating weaker future demand. Markets in Europe are very quiet as today is a bank holiday in the UK and the Netherlands. The only news worthy of highlighting is the continued navigation issues on the Rhine River.

Soybean oil markets are facing their own pressures. Recent USDA data revealed a persistent rise in US domestic soyoil stocks, reaching 2.08 billion pounds by the end of March—an 8% increase from February. Declining biofuel sector demand, partly due to uncertainty around transitioning from the Blenders' Tax Credit (BTC) to the 45Z Clean Fuel Production Credit, continues to weigh on market sentiment. The resilience of soybean oil is puzzling, particularly given the backdrop of unfavorable soybean export inspection data, which adds to the bearish sentiment. Despite these headwinds, soyoil has continued to trade at a very high coefficient versus ICE gasoil, currently at 1.83x, underscoring elevated valuation pressures. Further confirming weak fundamentals, FOB Paranagua soyoil premiums are soft, with bids at -410 for June and -520 for July. Given these factors, it appears inevitable that soybean oil values will need to adjust downward to better reflect the mounting supply and demand pressures.

Palm oil dynamics are also contributing to the bearish outlook. Malaysian April palm oil stocks rose significantly, forecasted at 1.79 million metric tons, a 14.8% increase from March, driven by a robust 16.9% monthly increase in crude palm oil production. Exports grew modestly by 9.7% to 1.1 million metric tons, yet the substantial increase in production overshadowed export gains, indicating persistent surplus concerns in the palm oil market.

A critical highlight today is the strength in D4 RINs, currently trading at $1.191. Despite this high valuation, biodiesel screen crush margins remain in negative territory, reflecting a margin of -36 c/gal for July. This persistent negative margin underscores the challenging environment biodiesel producers face, caught between weakening ULSD markets and resiliently priced feedstocks. The market appears poised for continued volatility amid mixed signals on demand recovery and supply dynamics heading into the second half of the year.