Risk Premium Exits Energy, Physical Biodiesel Holds Firm

Energy dominated the session. ICE gasoil suffered a two standard deviation move lower, with the prompt contract down roughly 8 percent on the day. Front month heating oil fell close to 7 percent. The catalyst was geopolitical. The US entered direct negotiations with Iran, sharply reducing near term war risk and triggering an aggressive unwind of energy length. Gasoil flat price dropped more than 60 dollars per metric ton in a single session.

The structure of the gasoil curve reinforces this interpretation. Feb Apr backwardation compressed from roughly 32 dollars per metric ton to about 22 dollars, a 30 percent contraction in one day. Similar compressions occurred in June and again in November 2025, both times following geopolitical de escalation rather than changes in physical availability. In June, backwardation above 30 dollars unwound rapidly after a ceasefire ended a brief Iran Israel conflict. In November, spreads compressed by roughly 25 to 35 percent once Middle East escalation failed to translate into supply disruption. In all cases, the move reflected risk premium exit rather than prompt oversupply. Today fits that same template.

Despite the energy shock, European biodiesel physical markets remained active. In the ARAG window, RME traded at a premium of 709 dollars per metric ton, up from 665 dollars last week, a 44 dollar week on week expansion. Flat price settled at 1,391 dollars per metric ton. Premium strength on a day of heavy energy selling points to physical tightness rather than paper support.

UCOME showed a split dynamic. Premium traded at 730 dollars per metric ton, up from 707 dollars last Friday, a 23 dollar increase. Flat price settled at 1,412 dollars per metric ton, down 34.5 dollars on the day. Feedstock availability and logistics continue to support the premium, while flat price follows gasoil lower.

HVO Class II tracked energy closely. Flat price settled at 2,309 dollars per metric ton, down 55 dollars on the session. No premium expansion was visible, confirming that HVO pricing remains tightly linked to gasoil moves.

South America continues to export a bearish forward signal. In Brazil, FOB soyoil basis weakened again. Best bid on Paranagua for Apr May was minus 530, versus minus 450 previously. Jun Jul was indicated as weak as minus 650. That represents a 200 point deterioration on the forward curve in a short period. The driver is abundant soybean supply and limited forward oil demand.

Brazil’s reopening of UCO imports for SAF adds further pressure to forward soyoil. Each metric ton of UCO used displaces roughly one metric ton of vegetable oil demand. Brazil typically exports 1.6 to 1.8 million metric tons of soyoil per year, and HVO export optionality remains economically superior to domestic SAF conversion. This places a ceiling on forward soyoil demand rather than support.

Argentina reinforces the signal. Biodiesel exports in 2025 totaled 273,000 metric tons, the lowest level since 2007, versus more than 2.5 million metric tons during peak years. The decline reflects export economics and policy structure rather than feedstock scarcity. Soybean exports exceed 30 million metric tons, and soybean meal exports are near 27 million metric tons, providing sufficient foreign currency inflows without reliance on biodiesel.

The most likely adjustment path in Argentina is domestic usage. Increased local blending absorbs volume without forcing export discounts, limiting any supportive impact on global vegetable oil demand.

Asia adds another layer of uncertainty. Indonesia announced a ban on exports of used cooking oil and palm oil waste as part of its aviation fuel strategy. The scope remains unclear, particularly whether POME is included. Even partial enforcement tightens UCO availability. Indonesia exported 23.6 million metric tons of crude and refined palm oil last year, so policy shifts there carry global implications.

Bottom line. Energy dictated the screen, but biodiesel physical markets in Europe remained resilient. Gasoil backwardation compression mirrors prior de escalation episodes rather than a change in fundamentals. South America continues to export forward weakness through Brazilian soyoil basis and restrained Argentine biodiesel exports. After a one directional selloff and a 30 percent collapse in backwardation, the setup supports watching closely for a potential Turnaround Tuesday.