Talks Are Not a Deal

Energy is trying to price relief, but the refining signal is not soft. Brent Aug was down $2.89 at $77.68, WTI Jul was down $1.80 at $74.80, and ICE gasoil Jul was down $26.25 at $878.75. On flat price, that looks bearish. On margin, it does not. The US heating oil crack is still near $56.51/bbl, while the 3:2:1-style crack is near $52.30/bbl. That is still a strong distillate signal. The US SPR also sits around 340.25 million barrels, the lowest level shown since July 1983, so the market has less balance-sheet comfort than it had before the last energy shock.

The Hormuz situation is the reason I would not chase the “relief” trade too far. US-Iran talks are ongoing, but Israel remains the most important military participant in the conflict and is not the direct counterparty in those talks. That matters because tanker crossings through the Strait of Hormuz are still nowhere near the old normal. The Bloomberg tanker crossing chart shows the pre-February 28 regime running mostly around 55 to 85 daily crossings, while the latest reading is near 3, after a brief June spike. Windward also showed 25 vessel transits over 12 hours on June 22, with 10 inbound and 15 outbound, so traffic exists, but it is controlled, thin and fragile. In my view, we are set for 60 days of high volatility. The Strait can close again too easily, and it is hard to see flows returning to pre-February 28 volumes until there is a final deal, not only a negotiating track.

SoH Crossings

For US biofuels, the key point is that D4 RINs are still doing the heavy lifting. Dec26 D4 RINs were last shown at 2.440, versus 2.406 on Friday, and the three-month chart still shows the move from roughly 1.60 in late March to the current 2.40 area. At the same time, bean oil is not waiting for global vegoil to catch up. CBOT Jul bean oil was 70.46 c/lb, up 0.77 on the day, equal to about $1,555/mt, while Dec was 66.72 c/lb, leaving Jul/Dec still at +3.74 c/lb. The problem for producers is visible in the screen crush. RD biodiesel crush margin fell 16.31% to 0.3797, while conventional biodiesel margin crush fell 7.18% to 0.8452. That is the squeeze: stronger RINs and strong cracks support demand, but bean oil is rallying faster than the diesel leg can protect margins.

D4 RINs

The US dollar is also back in the conversation. DXY is trading above 100 again, last at 100.630, with a weekly high at 100.845. That is important because a stronger dollar normally pressures dollar-priced commodities and tightens financial conditions for importers. Today, that pressure is visible in flat crude and gasoil, but it has not broken the distillate crack or the US biofuel policy premium. The US-EU trade agreement has now been approved by EU parliament on Jun16 , but so far it has had little visible impact on biofuels. The next trade item for agriculture and renewable fuels is North America, with the USMCA review process set to begin on July 1. For now, that adds another policy calendar item without changing today’s RIN, feedstock or distillate math.

Europe is active, but the paper market is not sending a clean bullish signal. The AOM window on June 19 showed UCOME deals at 685 and 690, RME at 605, FAME at 580, HVO Class II at 1545 and 1550, and HVO Class IV at 1600. Week 20 paper volume was the strongest of the last five weeks, with 236 kt RME, 196 kt FAME0, 141 kt UCOME and 177.6 kt HVO2, while Week 24 dropped to 78.5 kt RME, 27 kt FAME0, 112 kt UCOME and 131.1 kt HVO2. Today’s SunCo sheet also shows softer paper levels, with Jul FAME0 at 531, RME at 566, UCOME at 671 and HVO II at 1878, while gasoil live was around 891.75. Europe has physical activity, but paper still looks more defensive than explosive.

The global vegoil backdrop remains the counterweight to the US island. CFR West India CPO was shown with Jul at $1232.75/$1242.75 and Aug at $1238.50/$1248.50, while CFR West India SBO was Jul $1231.50/$1241.50 and Aug $1241.25/$1251.25. That is far below CBOT bean oil near $1,555/mt. Malaysia palm also keeps showing supply growth, with SPPOMA June 1-20 production up 15.92% and yield up 15.18%. Russia sunflower adds another bearish long-term layer to all vegetable oils, with USDA showing Russian sunflower seed production forecast at 19.5 million tonnes in 26/27, up from 17.5 million in 25/26 and 9.2 million in 15/16. So the market remains split: global vegoil supply is not tight enough to justify US bean oil by itself, but US policy, D4 RINs, distillate cracks and Hormuz risk are still strong enough to keep the US biofuels complex trading like its own island.