War in Iran Tightens Global Diesel Supplies While Methanol May Become Biodiesel’s Weakest Link

The global distillate system remains under acute pressure as the war involving Iran continues to disrupt crude flows and tanker movements across the Middle East. Brent crude rallied again with the front spread strengthening to roughly 11 dollars per barrel, reinforcing a deeply backwardated structure that signals immediate physical scarcity. ICE gasoil continues to show one of the tightest prompt structures in the complex with the Mar–Jul spread still near +363 dollars per metric ton even after falling roughly 76 dollars per ton settling at +$314 and now up $48/mt. Houston we have a serious problem in Europe!

Physical diesel markets are tightening even faster than futures curves suggest. In Asia, diesel cash premiums surged to record highs with 10 ppm gasoil differentials reaching about 27.7 dollars per barrel while refining margins expanded to roughly 40.7 dollars per barrel. Spot availability remains limited as refiners face crude supply disruptions and prioritize contractual deliveries rather than offering cargoes into the spot market.

Singapore 10 ppm gasoil traded near 184.9 dollars per barrel while jet fuel markets strengthened as well. Jet fuel regrade surged toward 30 dollars per barrel reflecting strong aviation demand and the broader tightness in the middle distillate complex.

Supply disruptions in the Persian Gulf continue to reinforce the tightening environment. Iraqi production from southern oilfields reportedly dropped roughly 70 percent to about 1.3 million barrels per day as export routes through the Strait of Hormuz became severely constrained. Saudi Aramco has responded by offering more than four million barrels of crude through rare spot tenders as refiners scramble to secure replacement supply.

The same geopolitical shock is now spreading into agricultural inputs. Roughly 45 percent of global urea exports move through the Strait of Hormuz, exposing fertilizer markets to the same risks affecting crude and product flows. The impact on farm economics is already visible. In December farmers needed about 75 bushels of corn to purchase one ton of NOLA urea. Today that ratio has deteriorated to roughly 126 bushels as urea prices surged around 270 dollars per ton while December corn futures gained only about 25 cents per bushel.

Within the biofuels complex the biodiesel crack curve is reacting in an unusual way to the diesel shortage. Spot BOGO is currently near +392 dollars per metric ton while the forward curve remains steeply contangoed with May around +645 dollars per ton and July near 608 dollars per ton. Seems FAME premium should be in contango according to BOGO.

At first glance this structure appears inconsistent with the extreme backwardation in diesel markets. The explanation lies in the mechanics of the spread. Because prompt gasoil prices are inflated by immediate scarcity, the nearby biodiesel crack compresses. As the curve moves forward and gasoil prices decline along the backwardated structure, the crack spread expands. The market is therefore pricing an immediate diesel shortage while assuming biodiesel supply will increase later in the year.

Vegetable oil markets are beginning to react to the same signals. Chicago soybean oil futures are trading near 66 cents per pound, equivalent to roughly 1450 dollars per metric ton. The May–Jul soybean oil spread has moved into backwardation near 0.39 cents per pound, suggesting feedstock markets are starting to tighten as distillate prices pull demand forward.

Relative pricing confirms this adjustment process. Soybean oil expressed as a percentage of gasoil currently sits near 1.30 for the nearby contract and rises toward roughly 1.84 further along the curve. Diesel has therefore outrun vegetable oils during the initial phase of the energy rally, but the spread structure suggests feedstocks are beginning to catch up.

One overlooked variable in the biodiesel expansion story is methanol. Methanol is the critical reagent used in the transesterification process that converts vegetable oils and waste fats into biodiesel. Global methanol production is concentrated in natural gas based facilities across the Middle East and parts of Asia, meaning supply chains are exposed to the same geopolitical disruptions affecting the energy complex.

If diesel shortages continue to push governments toward higher biodiesel blending mandates, methanol demand could rise rapidly. That creates the possibility that methanol supply rather than vegetable oil availability becomes the next bottleneck in biodiesel production. This risk is particularly relevant in Southeast Asia where Indonesia and Malaysia continue pushing higher biodiesel blend mandates while regional diesel shortages intensify.

Should methanol markets tighten materially, the expansion of conventional biodiesel production could slow not only in Asia but also across the Americas where biodiesel plants rely on the same transesterification chemistry. In that scenario feedstock availability would not be the binding constraint. The limiting factor would instead be access to sufficient methanol supply at economically viable prices.

U.S. biodiesel economics improved modestly during the session. D4 RIN futures for December traded near 1.53 dollars per RIN while heating oil futures approached roughly 3.57 dollars per gallon. Based on these inputs the screen biodiesel crush shows a positive margin near 19.6 cents per gallon for the nearby month while forward months remain negative between roughly 12 and 14 cents per gallon. Production decisions later in the year will therefore depend heavily on RIN pricing, LCFS credits and the final implementation details of the 45Z tax credit.

Taken together the spreads across global energy and biofuel markets are sending a clear message. Distillate markets are experiencing an immediate supply shock while vegetable oils are beginning to tighten in response. Biodiesel is gradually being repriced as a strategic component of the global diesel supply balance. Yet if blending mandates expand aggressively, methanol supply may become the overlooked constraint that ultimately determines how much conventional biodiesel the market can produce.