Week 26 update: Market volatility driven by geopolitical developments and European regulatory changes

June 26, 2025 – Vesper Market Intelligence

The biodiesel market experienced significant volatility this week, with prices initially plummeting following the Israel-Iran ceasefire before staging a recovery as regulatory developments in Europe began reshaping market dynamics. The sector’s sensitivity to both geopolitical events and policy changes was on full display as traders navigated competing market forces.

Sharp decline followed by recovery

Biodiesel prices dropped sharply early in the week as fossil fuel benchmarks weakened following the US and Qatar-brokered ceasefire between Israel and Iran. Brent crude oil fell $9 per barrel as markets embraced the temporary de-escalation, dragging biofuel prices lower in tandem.

However, the recovery began yesterday as crude oil prices stabilized on news that China will continue purchasing Iranian oil, while emerging European regulatory changes started supporting advanced biofuel demand expectations.

Low sulfur gas oil (LSGO) lost $70/mt this week, reaching $669/mt, highlighting the broader energy complex’s volatility amid the shifting geopolitical landscape.

European regulatory developments reshape market dynamics

Significant policy discussions across Western Europe are creating new market dynamics for the biodiesel sector. Germany, France, and the Netherlands are reportedly discussing ending the double-counting of advanced feedstocks, a move that could fundamentally alter biofuel economics.

Germany is also considering more stringent measures, including potential bans on biofuels produced from soy and palm oils, alongside mandatory on-site audit requirements. These anti-fraud measures could effectively exclude biofuels from countries that don’t permit foreign inspections, such as China, from the German market.

Market participants expect these regulatory changes to drive higher demand for hydrotreated vegetable oil (HVO) and used cooking oil (UCO), which will be needed to meet blending obligations, thereby supporting feedstock prices and contributing to the recent recovery in advanced biofuel markets.

Feedstock markets show mixed signals

The used cooking oil market demonstrated the complex interplay between supply, demand, and regulatory uncertainty:

Chinese UCO prices increased to $1,045/mt from $1,000/mt the previous week, though buyers remain cautious as they assess the implications of Middle East developments and European regulatory changes.

European UCO prices strengthened, with Netherlands EXW prices rising to EUR 1,065/mt from EUR 1,033/mt, reflecting tightening supply expectations amid potential regulatory shifts.

Chinese UCO export data revealed changing trade patterns, with May exports reaching 192,402 mt, down significantly from 326,000 mt in May 2024. Notably, no volumes were shipped to the US, with most exports directed to Singapore and European markets.

Brazil announces mandate increases

Adding to the week’s developments, Brazil’s government announced increases to both ethanol and biodiesel blending mandates, effective in August. The mandatory ethanol blend in gasoline will rise from 27% to 30%, while the biodiesel blend in diesel increases from 14% to 15%.

This policy change is expected to provide additional demand support for feedstock markets and demonstrates the continued global push toward higher renewable fuel adoption rates.

Market outlook and implications

The biodiesel sector’s performance this week highlighted its sensitivity to both energy market dynamics and evolving regulatory frameworks. The interplay between geopolitical developments, policy changes, and supply-demand fundamentals is creating a complex trading environment requiring sophisticated analysis.

Key factors driving near-term market direction include:

  • Stability of the Middle East ceasefire and crude oil price movements
  • Implementation timeline for European regulatory changes
  • Supply chain adjustments in response to new compliance requirements
  • Brazilian mandate increases and their impact on global feedstock demand

Read the full week 26 Biodiesel market analysis on the Vesper platform here: https://app.vespertool.com/market-analysis/2043