The MOU Cracks Before BOGO Does

The market delivered the opposite of what I expected today. July ICE gasoil fell $19.25/mt to $894.25 while July soybean oil gained 0.49 cents/lb to 71.30. July BOGO widened $30.05/mt to $677.63, August gained $17.78 to $665.44 and December added $10.05 to $693.57. BOGO remains 23% to 32% higher over three months across the forward curve. Today’s move looks like another extension rather than a change in the broader direction.

BOGO

The US refining margins deserve more attention than the decline in crude or gasoil. The heating-oil crack closed at $65.51/bbl, while the implied RBOB crack reached almost $55/bbl, lifting the 3:2:1 margin to $58.48/bbl. Gasoline cracks are finally catching up with the inventory reality.

Gasoline stocks increased 2.1 million barrels to 216.3 million last week but remain 5% below their five-year average. Distillate inventories gained 3.1 million barrels to 106.1 million but remain 10% below average. Total US oil stocks, including the SPR, fell another 9.7 million barrels, while total tracked inventories across the US, Europe and Asia declined 1.9 million barrels. US refineries already operated at 96.1% of capacity, while total refining capacity fell 263,000 bpd during 2025. Strong cracks are an inventory signal rather than an anomaly.

US Gasoline crack

Energy weakness followed a 3.74% drop in August WTI to $69.23 and a 2.88% decline in August Brent to $73.09. Money managers reduced their Brent net length by 23,790 contracts to 90,338, but long-only positions fell 52,097 while short-only positions also declined by 28,307. This was broad position liquidation rather than aggressive new short selling. Global inventories continue to fall rapidly and now stand at their lowest seasonally adjusted level in recent years. The physical cushion behind the crude market continues to disappear.

Hormuz traffic has recovered, but the vessel count overstates the recovery in energy flows. Forty vessels transited today, with 28 outbound and 12 inbound, while 27 used the southern corridor. Outbound movements carried 6.9 million barrels of crude and products. Yet crude volumes were only 35% of their pre-conflict daily level, oil products were at 25% and LNG remained at zero. LPG was the only category back to its pre-conflict volume. Oil and products held on ships inside the Gulf have fallen from almost 195 million barrels to about 90 million, showing that trapped cargoes are clearing, but replacement flows remain far below normal.

SoH Transit

My view of the MOU has not changed. A cargo ship was attacked near Oman, tankers were turned back, two LPG vessels were reportedly denied passage and US forces responded by striking Iranian missile, drone-storage and coastal radar sites. These were the first US strikes since the MOU was signed. Iran also appears determined to retain control over navigation through the Strait rather than accept an alternative corridor managed by Oman and outside parties. I believe the next phase will involve further kinetic escalation, with an increasing risk of direct US and GCC ground involvement. The market sold the reopening today even as the political and military foundations of the MOU weakened.

US soybean export sales provided some good news. Old-crop sales reached 455,000 mt, near the top of the 100,000 to 500,000 mt estimate range, while new-crop sales reached 902,000 mt against expectations of 450,000 to 1 million mt. The new-crop total included 200,000 mt for China and 529,000 mt for unknown destinations. The distinction for vegetable oil traders is important: soybean oil sales were only 900 mt for old crop and zero for new crop. China also has ample soybean arrivals, while July, August and September board crush margins fell to $19.22, $18.87 and $12.54/mt. Strong soybean sales therefore provide some support for US beans without resolving the weaker global soybean oil balance.

Fertilizer costs continue to move lower. Brazilian CFR urea fell another 2.41% this week to $405/mt and now stands roughly 50% below its peak. Ammonium sulfate fell 9.30% to $195, single superphosphate declined between 1.61% and 3.39%, MAP eased 0.56% to $895 and ammonium nitrate dropped 11.63% to $380. Lower fertilizer costs improve the economics of the 2026/27 South American crop and reduce the cost pressure needed to restrict acreage or applications. This is another longer-term supply warning for a soybean oil market already facing aggressive export availability.

Soybean oil strength remained concentrated at the front. July gained 0.49 cents/lb, but December fell 0.10 to 67.09, widening the July/December inverse by 0.59 cents to 4.21. September BOPO narrowed $6.47/mt to $383.94 as palm oil gained 0.89% against only 0.03% for October soybean oil. Dutch soybean oil offers fell €10/mt to €1,140 for July while Dutch rapeseed oil rose €10 to €1,295. Brazil’s Paranaguá soybean oil basis was indicated near -1,550 for July and -1,580 for August/September, compared with -650 to -700 earlier this month. The physical and deferred markets remain much weaker than the July CBOT soybean oil contract suggests.

USDA also released its final Regenerative Feedstock Rule and the FD-CIC calculator used to determine field-level carbon intensity for corn, soybeans, sorghum and spring canola. The framework includes traceability, mass-balance accounting, auditing and verification for practices such as no-till, reduced till, cover crops and additional nutrient management. This gives farmers and biofuel producers a working route for translating regenerative practices into 45Z values, although the commercial impact will depend on achievable CI reductions, verification costs and how buyers share the resulting credit value.https://www.usda.gov/usda-fdcic

The December D4 RIN future held near $2.46, but the US biodiesel screen deteriorated sharply. The July RD margin fell 13.16 cents to 49.37 cents/gal, about $174/mt, while the conventional biodiesel margin dropped 12.67 cents to 96.07 cents/gal, about $288/mt, before 45Z and LCFS.

The ARA window remained active. RME traded at a $610/mt premium for a flat price of $1,496.58/mt, FAME 0 traded at $580 for $1,466.58 and UCOME traded around $719.50 for $1,606.08. HVO Class II traded at $1,350/m3 over gasoil, giving a flat price near $2,691/mt. Paper activity was led by 93,000 mt in HVO Class II and 37,300 mt in FAME, followed by 20,000 mt in RME and 19,200 mt in UCOME. The physical biofuel market remains firm even as the underlying gasoil contract falls.

Today’s wider BOGO resulted from crude liquidation, weaker gasoil and front-end soybean oil support. It did not resolve depleted oil inventories, product cracks above $50/bbl, Hormuz energy flows far below normal, weakening deferred vegoil values or falling fertilizer costs. I continue to believe the next substantial move in BOGO will be lower. Have a great weekend and remember that next week is a shortened work week!