The energy markets are experiencing notable shifts as ICE gasoil expired today with a nearly $13/mt premium to futures, while April/July backwardation dropped almost 20% to $13. This decline comes despite screen heat crack margin remaining relatively significant at just below $25/brl, though this represents a $5/brl decrease from February levels. The technical indicators for gasoil appear bearish, suggesting potential further downside ahead.
In the vegetable oil markets, March soybean oil futures expiring this week are showing a remarkable carry (contango) of $11/mt to May, reflecting sluggish demand in the U.S. despite a strong export book. This weakness extends to the biofuels sector where D4 RINs are trending lower at $0.745 as industry stakeholders pivot their strategy, now lobbying for the renewal of the 40A credit (Biodiesel Tax Credit) rather than waiting for guidance on the 45Z Clean Fuel Production Credit. With the U.S. Senate currently focused on passing a bill to keep the government funded through September, BTC issues have been pushed to the background.
European biodiesel markets are showing significant structural imbalances, with FAME 0 trading at $1,213, reflecting a replacement gross margin of negative $95. This occurs as European soyoil values are backwardated by an extraordinary $185/mt to June. In stark contrast, RME (Rapeseed Methyl Ester) is maintaining a positive replacement gross margin of $114.50, highlighting that rapeseed oil has become the cheapest soft oil alternative in Europe. The weakening USD against the Euro is providing some relief by making imported feedstocks more attractive for European producers, though not enough to offset the fundamental market imbalances. The market is also anticipating what many traders are calling "the trade of the year" - the expected end of double counting for certain biofuels this spring, which will significantly reshape trading patterns and profitability in the European biofuels sector once implemented.
The palm oil market continues to send mixed signals, with the bean oil-palm oil spread (BOPO) at negative $44/mt for May, a substantial narrowing from December's negative $139/mt. This relative strength in palm oil is primarily attributable to lower palm oil stocks, which fell to a 21-month low in February according to the Malaysian Palm Oil Board. With December 2025 futures already at negative $31/mt, questions remain about palm oil's longer-term position, especially given the massive South American soy crop and widespread global availability of soybean oil. Crush margins in contango (with May at $41/mt and August at $47/mt) further indicate that processors are being incentivized to delay rather than crush immediately.
These developments, alongside trade tensions from Canada's antidumping investigation against U.S. renewable diesel and China's 100% tariffs on Canadian rapeseed oil, create a complex market landscape for traders and producers. With France reporting a 5.1% decline in diesel consumption and U.S. biodiesel screen crush remaining negative at $0.34 (widening down the curve to July), the biofuels sector faces significant near-term challenges across multiple fronts, requiring careful navigation of both immediate price movements and longer-term structural shifts.
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