Week 25 biodiesel update: Middle East conflict drives energy complex higher while US policy changes reshape biofuel demand outlook

June 18, 2025 – Biodiesel markets gained momentum this week as geopolitical tensions in the Middle East and significant US policy developments created a supportive environment across the renewable fuels complex.

Energy complex drives biodiesel strength

Low sulfur gas oil (LSGO) prices surged $84/mt to $716/mt, reflecting broader energy market volatility stemming from the Israel-Iran conflict. The escalation began with Israeli strikes targeting Iranian nuclear facilities, prompting retaliatory attacks that have raised concerns about regional oil supply security.

Iran’s position as a major crude oil producer has markets focused on potential supply disruptions, with particular attention on the strategic Strait of Hormuz shipping route. Market analysts indicate that Brent crude’s $10/barrel increase incorporates both geopolitical risk premiums and actual Iranian volume losses.

US policy developments reshape biofuel landscape

The EPA’s proposed renewable volume obligations for 2026 exceeded market expectations, setting targets at 5.61 billion gallons compared to industry requests for 5.25 billion gallons and this year’s 3.35 billion gallons. The proposal includes several provisions that could significantly impact biodiesel markets:

  • Renewable Identification Number (RIN) credits for foreign biofuels and foreign feedstock-derived fuels would be halved
  • Small refinery exemptions may be reallocated to larger players rather than eliminated
  • These changes provide substantial support for domestic biofuel production

Feedstock markets show mixed signals

Used cooking oil (UCO) markets displayed regional variations, with Netherlands EXW prices holding steady at EUR 1,033/mt while Chinese FOB prices softened to $990/mt from $1,000/mt. However, current US import tariffs of 55% on Chinese goods create significant cost barriers for UCO imports.

Animal fats markets strengthened as suppliers reported reduced availability of premium grades due to seasonally higher temperatures affecting quality.

Legislative developments add complexity

Congressional discussions around the “big beautiful bill” and 45Z tax credit amendments are creating additional market dynamics. The Senate version differs from the House approach by allowing global feedstock sourcing while reducing credit values by 20% for non-North American feedstocks, effective January 1, 2026.

Market outlook considerations

Several factors will continue influencing biodiesel markets:

  • Geopolitical risks: Analysts suggest Brent crude could remain below $80/barrel if conflicts stay limited, but Strait of Hormuz disruptions could push prices above $90-100/barrel
  • Policy finalization: EPA proposal implementation and Congressional legislative outcomes will shape long-term demand patterns
  • Seasonal factors: Summer temperatures affecting feedstock quality and availability
  • Trade dynamics: Ongoing tariff impacts on international feedstock flows

Acces the full biodiesel market analysis for week 25 here: https://app.vespertool.com/market-analysis/2023