Sanctions Shock Lifts Gasoil; Palm Oil Faces Indonesia’s Military Grip

The market was jolted today as ICE gasoil futures surged sharply, climbing more than 6% in one of the largest single-day moves this quarter. The rally followed coordinated sanction announcements from both the European Union and the United States that expanded the list of Russian entities under SDN restrictions, including Rosneft and Lukoil.

These measures go far beyond the partial restrictions introduced in 2022. The earlier sanctions relied mainly on sectoral limits, price caps, and bans on new financing—but still allowed oil to move through non-USD channels using intermediaries in India, the UAE, or China. The 2025 package, by contrast, designates Rosneft and Lukoil directly as SDNs, meaning all transactions with them—regardless of currency—are sanctionable. Any bank, insurer, or shipowner handling their cargoes now risks secondary U.S. sanctions and potential loss of USD correspondent access.

The difference is profound. In 2022, Russia successfully redirected crude and diesel flows toward India and China in rupees, dirhams, and yuan. Now, that workaround is closing fast. Because 90% of global tanker insurance and reinsurance remains London-based and USD-denominated, the new bans effectively weaponize insurance, leaving ships carrying SDN-linked oil without coverage or port access. Washington has also expanded enforcement to the “shadow fleet,” blacklisting vessels and registries that help circumvent restrictions. For the first time, sanctions reach deep into logistics, flagging, and reinsurance infrastructure rather than just the producers themselves.

The result was immediate: refined-product spreads exploded, with the ICE gasoil front contract trading near $703/mt—up more than $44 on the day—and backwardation widening sharply. The Dec/Apr spread now stands at +$38.75/mt, more than doubling from +$18/mt just a week ago (October 16), underscoring how rapidly near-term diesel tightness is pricing in. Heating-oil cracks have firmed to nearly $38/bbl, their highest since March, signaling a diesel-led recovery even as broader energy prices remain subdued. Biodiesel/RD screen crush margins improved by 10–15% on the day, though they remain negative on a production basis at negative 46 c/gal.

In the vegetable-oil complex, soybean oil futures recovered modestly—up about $12/mt to $1,116/mt FOB—while rapeseed oil in Europe slipped slightly to €1,135/t for nearby loading. The BOGO spread narrowed to +428, down roughly $27 from the prior session, underscoring how sharply gasoil has outpaced feedstock in the latest risk repricing.

Asian markets are watching Indonesia closely after Reuters confirmed that the government, backed by the military, has seized over 3.7 million hectares of palm plantations, placing them under a new state firm, Agrinas Palma Nusantara. Nearly one-third of the country’s palm acreage is now under military or legal scrutiny—an extraordinary intervention that threatens future output. Analysts warn that yield declines could emerge as early as late this year as private operators cut fertilizer and upkeep on contested lands.

Adding to uncertainty, Citi reported that Indonesia’s long-planned B50 mandate will likely be delayed to 2027 due to funding shortfalls and an unfavorable palm-to-gasoil spread. For now, CPO prices are expected to stay supported around MYR 4,300–4,500/ton, but the broader risk to Indonesia’s production is shifting from price to governance.

In the U.S., D4 RINs softened slightly, with December futures last at $0.998/RIN (–3.6% day-on-day), while the 2026 strip held near $1.06. The pullback reflects weaker compliance demand as refinery runs remain constrained by maintenance and policy uncertainty. Traders continue to price in the possibility of delayed EPA guidance if the government shutdown drags past early November, a scenario increasingly likely as fiscal talks stall in Washington. Extended gridlock could slow RIN verification and credit settlements into the Thanksgiving period.

The rally in diesel is probably not over. With sanctions still rippling through logistics, shipping, and insurance channels, the bite will deepen as we move further into Q4. ICE gasoil has now recovered $68.50 from the early-October lows and could accelerate toward $750/mt quickly if sanctions enforcement tightens and Russian product volumes retreat further. The steepening backwardation and firm cracks signal that the diesel rally—normally constructive for biodiesel demand and margins—still has room to run as the market re-prices supply risk into winter.