Valero Q1 Report Casts Shadow on Renewable Diesel Market Despite Bullish Soybean Oil Trends

Gasoil markets saw a remarkable settlement on Friday, April 25, closing significantly higher at $628.50 per metric ton. This represents nearly a $50 per ton increase—or an impressive 8.5% rise—in just 10 days compared to the April futures settlement at $579 per metric ton. This surge is particularly notable given the generally bearish outlook reflected in recent gasoil charts.

Adding to the bullish sentiment, heat cracks have surged upwards, settling at $28 per barrel. This move is surprising against the backdrop of a broadly uncertain demand scenario. The strength in heat cracks is indicative of underlying tightness or strategic market positioning, which may persist despite broader economic or demand concerns.

In the US, however, the picture for renewable diesel turned markedly less optimistic following Valero's Q1 earnings report after close. The company's disclosure revealed significant losses in renewable diesel operations, marking a stark negative swing compared to profitability in Q1 of the previous year. Most notably, Diamond Green Diesel (DGD) operations are running at approximately 65% capacity, a level still relatively high given the financial losses reported, raising questions about future adjustments in production levels.

Meanwhile, the broader vegetable oil complex showed considerable bullish momentum. D4 RINs spiked sharply, settling at 1.12, driven by a significant rally in soybean oil prices. Indeed, CME's July soybean oil contract reached its highest level since November 2024, closing at 49.50 cents per lb—a day-on-day increase of 2.40%. The bullishness was underscored by robust US soybean oil export data, with weekly exports hitting 45,500 tonnes, marking a notable 45% increase compared to the recent four-week average.

Asian and European vegetable oil markets reflected a mixed sentiment, balancing improving exports against rising production. Malaysian CPO futures closed nearly flat at 4,036 ringgit per tonne amid recovering export demand offset by anticipated higher production. Meanwhile, Indonesian palm oil exports for March saw a marginal decline, keeping pressure on pricing amid expectations of lower export duties for May. European rapeseed oil futures rose slightly, despite physical market prices declining, highlighting nuanced regional dynamics within the broader vegetable oil market.