When Fundamentals Break: Biodiesel Premiums, Carbon Tariffs, and a Disconnected Dollar

The biodiesel market continues to confound expectations. Spot premiums in the ARAG barge market have exploded, with FAME 0 trading at $1309/mt — over $700/mt above ICE gasoil. That’s a premium ratio of 1.15x to the underlying fossil benchmark, compared to just 0.46x at the same time last year. And it's not just the multiple that's startling: last year’s BOGO — the bean oil over gasoil spread — was at +256/mt, while this morning it's at +418/mt, nearly 7% lower week-on-week. Yet despite this year's stronger BOGO, today's spot premiums are nearly double. This divergence suggests a market driven by scarcity of trusted physical rather than any broad-based demand resurgence.

Germany’s consumption data explains part of this distortion. Blending volumes in December 2024 were just 90,800 tonnes — a decade low — contributing to a full-year decline of 20.6%. The German industry association UFOP has sounded the alarm, urging Berlin to end the practice of double counting waste-based biofuels under Annex IX Part A of RED II. Market participants have increasingly relied on stored GHG credits to meet compliance, fulfilling mandates without buying physical volumes. The result is a system that satisfies quotas on paper while hollowing out real demand — even as premiums soar due to constrained credible supply.

Policy volatility is compounding the uncertainty. The reappearance of the Graham-Cassidy Foreign Pollution Fee Act — a carbon border tariff with rates up to 200% — is clearly intended as a strategic counterweight to Europe’s CBAM. But by excluding any domestic carbon price, the bill reveals more about geopolitical posturing than environmental ambition. Meanwhile, 45Z guidance is unlikely to arrive before June, leaving U.S. producers flying blind just as trade war tremors begin to reshape flows across soy oil, canola, and used cooking oil markets.

Overlaying all of this is an unsettling macro signal: the U.S. dollar is weakening despite rising Treasury yields. Non-commercial futures positioning shows traders abandoning USD longs and rotating heavily into the Japanese yen and euro. Net long yen positions hit a 12-month high of 147,067 contracts as of April 8, while euro net longs rose to nearly 60,000 lots. The move suggests hedging against both policy missteps and inflation risks — with FX volatility set to bleed into every dollar-priced commodity, including biodiesel feedstocks.

At present, the biodiesel market is in a strange suspended state. On-screen U.S. biodiesel crush margins remain firmly negative, at minus 30 cents per gallon, even as D4 RINs tick up to 1.065. European premiums are pricing scarcity and trust, not demand. Regulation is either unclear, delayed, or distorted. And in the background, currency hedges and financial dislocations hint at broader instability. We are trading in a market where fundamentals no longer dictate price — perception does.