Spreads Don’t Lie

The jawboning is working, helped by an unusual absence of Iranian headlines during the Tasoua and Ashura holidays on June 24-25. US officials have filled the news vacuum with assurances that Hormuz flows are returning toward normal. August Brent fell 4.68% to $73.47/bbl and August WTI dropped 4.10% to $70.21/bbl. Iran has exported 40 million barrels since June 15, including 20 million on June 19 alone. Yet commercial traffic remains around 25-35 vessels per day versus 80-130 before the war. This is a concentrated release of stranded and stored barrels, not a restoration of normal two-way trade. Iranian officials and negotiators will return to the news cycle starting this weekend, when the assumptions now embedded in flat crude prices will face a more serious test.

Freight provides the clearest reality check. A VLCC from the Persian Gulf to India was provisionally booked at Worldscale 897, almost nine times the benchmark rate and the highest reported this year. Around 65 empty VLCCs are now within one week of the Gulf of Oman, while recent vessel entries added at least 14 million barrels of potential loading capacity. Owners are repositioning to capture exceptional returns, but Worldscale 897 does not describe a normalized supply chain.

Distillate spreads also reject the flat-price message. July ICE gasoil traded around $883-887/mt while December stood near $787/mt, leaving July/December backwardation close to $100/mt after widening by roughly $19 today. July/August strengthened from $15.75 to around $21/mt. US Gulf Coast jet fuel cracks have retreated from their March peak near $74/bbl but remain around $45/bbl at the latest point shown, compared with roughly $32/bbl for conventional gasoline. The middle-distillate pool remains tight, which continues to support biodiesel, renewable diesel and SAF.

EIA data confirm the pressure. Commercial crude inventories fell by 6.1 million barrels to 412.1 million, 7% below the five-year average. Cushing stocks dropped by 1.1 million barrels to 19 million, near the bottom of their ten-year range and operability limits. The SPR released another 9.1 million barrels and fell to 331.2 million. Gasoline stocks increased to 216.3 million barrels but remain 5% below average, while distillates rose to 106.1 million and remain 10% below average. Total commercial crude and product stocks are near 1.20 billion barrels and below the five-year range despite crude production near 13.8 million b/d and refinery inputs of 17.1 million b/d.

The options market is pricing a much less settled outcome than flat crude suggests. Across the visible July gasoil strikes, open interest is about 9,245 calls against 8,737 puts, giving a put/call ratio near 0.95. Positioning is almost balanced between upside and downside protection. Implied volatility is around 45% near the money and generally 55-65% across active wings, reaching 70-80% at more distant strikes. The market is paying heavily for movement in either direction.

August soybean oil options present a different structure. Across the visible strikes, open interest totals about 43,304 calls against 16,696 puts, giving a put/call ratio near 0.39. Calls outnumber puts by roughly 2.6 to one, with concentrations of 5,322 contracts at 70 cents and 5,877 at 75 cents. Implied volatility is only 23-28% around the active strikes, rising above 30% further into the upside wing. Gasoil is pricing roughly twice the volatility of soybean oil. Soybean oil positioning remains directionally bullish, while gasoil is pricing violent two-sided geopolitical risk.

Soybean oil’s nearby spread is also being distorted as July delivery approaches. July fell 1.13 cents to 69.46 cents/lb while December declined 0.84 cents to 65.74 cents/lb. July/December narrowed to 3.72 cents after approaching 6 cents at its recent peak and briefly trading near 2.50 cents today. Part of this collapse reflects positioning ahead of July delivery registrations rather than a sudden deterioration in forward biofuel demand. BOGO remains the more useful comparison between feedstock and distillate curves. Spot BOGO fell by $13/mt to around $642/mt, with July near $667/mt, Q3 near $655/mt and Q4 near $650/mt. Today’s move represents an acceleration of the existing distillate tightness, not a new relationship between gasoil and soybean oil.

BOGO July

US biofuel economics improved as soybean oil weakened against distillates. The front renewable diesel screen crush rose by 11.47 cents to 58.31 cents/gal, around $175/mt, while conventional biodiesel increased by 10.31 cents to $1.0335/gal, around $310/mt, before 45Z and LCFS value. December D4 RIN futures held at $2.442.. The RFS continues to separate US soybean oil from a much cheaper global vegetable oil market.

August-September soybean oil traded at $1,250-1,252/mt CFR west coast India, around $280/mt below July CBOT before adjusting for timing. CPO traded at $1,230/mt CFR India, leaving soybean oil at a premium of only $20-22/mt. Paranaguá soybean oil strengthened to minus 1,400 against minus 1,650 for July and minus 1,450 against minus 1,650 for August-September. These levels are considerably stronger than several weeks ago, but Brazilian soybean oil remains deeply discounted to CBOT. China imported 36.94 million mt of soybeans from January through May, only 0.5% below last year, while its combined vegetable oil stocks increased by 40,000 mt to 2.10 million mt.

China Ag Imports

European physical and paper activity remained healthy. The ARA window recorded 11 trades, with FAME 0 premiums at $580-585/mt, RME at $610/mt, UCOME at $709-715/mt and HVO Class II at $1,380/m3. Paper traded 32.5 kt in RME, 40.5 kt in FAME, 38.5 kt in UCOME, 42 kt in HVO Class II and 5 kt in SAF. Q3 UCOME/FAME traded at $152/mt and Q4 at $161/mt, maintaining stronger forward relative value for waste-based biodiesel. Extreme heat also reached the ARA region, with temperatures of 35.3°C in Rotterdam, 35.1°C in Antwerp and 34.5°C in Amsterdam, adding another risk to European rapeseed yields and logistics.

Political messaging has lowered flat crude prices during a temporary Iranian news vacuum. It has not restored normal Hormuz traffic, reduced freight costs, rebuilt US inventories or flattened the distillate curve. Gasoil options are pricing two-sided risk at almost twice soybean oil volatility. With Iranian political activity returning after Ashura, the next test begins this weekend.