The Market Is Pricing a Bigger War

Cross-asset markets are beginning to repeat the pattern seen before Russia invaded Ukraine in February 2022. Gold/Brent has fallen from about 75 to 44.06, a 41% decline, while Gold/Wheat has dropped from about 9.3 to 5.90, a 37% decline. At the same time, continuous BOPO has risen to $539/mt, August Brent to $94.02/bbl, August gasoil to $1,224.25/mt and December D4 RINs to $2.382. Based on these commodity patterns, I assign a 75% probability to further military escalation over the next one to three months, severe enough to preserve or expand the current energy and agricultural supply premium. Weather and RFS policy account for part of wheat and soybean oil strength, but simultaneous repricing across crude, wheat, vegetable-oil spreads and RINs points toward a broader physical-supply hedge. Traders should use sharp corrections to reduce short energy and feedstock exposure.

Gold/Brent ratio

US stock data challenge the idea of an immediate shortage. Total petroleum inventories rose 6.501 million barrels to 1,533.850 million, with commercial crude up 2.010 million, distillate up 1.395 million and gasoline up 0.765 million. Refineries ran at 96.1%, crude output reached 13.798 million bpd and total exports reached 10.287 million bpd. The inventory chart places stocks excluding the SPR near 1.23 billion barrels versus 1.534 billion including the reserve, implying roughly 300 million barrels in the SPR. Futures curves still price urgency, with August to December Brent backwardation at $9.09/bbl, WTI at $8.10/bbl and gasoil at $220/mt. For traders, product stocks, refinery reliability and exports matter more than the weekly crude build.

EPA’s renewed E15 waiver through August 8 adds more D6 generation into the nested RFS pool. Each gallon shifted from E10 to E15 produces 0.05 extra D6 RIN, so 100 million gallons of incremental E15 sales create about 5 million additional D6s and reduce the need to use D4s for the total renewable obligation. At the same time, June domestic biomass-based diesel production reached a record 494 million gallons, including a record 327 million gallons of renewable diesel. Biodiesel production reached its strongest level since December 2024, with the industry running at 86% of capacity. Despite these two bearish inputs, December D4 futures rose 4.1% to $2.382, equal to $3.57/gal for biodiesel at a 1.5 equivalence value and $3.81/gal for renewable diesel at 1.6. The move suggests compliance demand remains tight enough to absorb both record D4 fuel output and extra D6 supply.

Palm and Europe show where risk is concentrated. July CPO traded at $1,227.50/mt CFR West Coast India versus soybean oil at $1,260/mt, a physical premium of only $32.50/mt, while continuous nearby BOPO reads $539/mt and Q4 BOPO stands at $426.98/mt. The gap shows US policy is driving a larger share of the Chicago soybean oil premium than Asian physical demand. From September 1, Indonesia plans DSI export oversight aimed at closing a reported 30% to 45% gap between Indonesian selling prices and international values, adding a potential floor under palm offers. In ARA, August RME was indicated at $1,529 to $1,549/mt, FAME at $1,469 to $1,489/mt, UCOME at $1,619 to $1,639/mt and HVO at $2,809 to $2,829/mt. Yet August RME fell $35 to a $340 differential, September FAME fell $34 to $281, August UCOME rose $5 to $445 and August UCOME/FAME widened $20 to $150. Waste-based material retains stronger relative support than crop-based biodiesel, while front-loaded BOPO carries the highest reversal risk.

BOPO

Hawaii has become the fifth US state with a Clean Fuel Standard, targeting at least a 50% reduction in transportation-fuel carbon intensity from 2019 levels by 2045. The policy does not change 2026 federal RFS volumes, but it expands state clean-fuel credit markets from four states to five and adds future Pacific demand for low-CI renewable diesel, biodiesel and SAF. The US 30-year Treasury yield at 5.134% also raises financing costs for new plants, favoring existing capacity at a time when June output has already reached a record. Screen margins moved opposite flat prices today. The nearby renewable diesel margin fell 4.3% to $0.969/gal and the conventional biodiesel margin fell 2.2% to $1.475/gal as feedstock gains outran heating oil and RIN gains. Traders should stay constructive on energy, D4s and low-CI feedstocks, but hedge margin separately from flat price and avoid assuming a strong commodity tape guarantees producer profitability.