Heavy gains in Ice gasoil futures have pushed biodiesel premiums to their lowest levels in two years, but the EU's strict blending cap means demand is unlikely to rise despite biodiesel's improved competitiveness.
Premiums for Fame 0 and used cooking oil methyl ester (Ucome) to Ice gasoil fell to fresh two-year lows on 5 March and have held near those levels since. The rapeseed-based biodiesel grade RME edged slightly higher on 6 March but remains at more than a one-year low.
The escalation of the US-Israeli war with Iran has driven gasoil values sharply higher, with markets touching fresh multi-year highs on Monday. Major shipowners halted transits through the strait of Hormuz after fighting broke out, tightening supply. Around a fifth of EU and UK diesel imports — roughly 200,000 b/d — flowed through the strait last year.
The surge in gasoil prices makes biodiesel appear comparatively cheap, but European buyers cannot increase usage because the EU Fuel Quality Directive caps conventional methyl ester blending at 7pc of the diesel pool. The cap effectively freezes road fuel biodiesel demand, even though high gasoil prices and the prospect of lower-cost compliance with biofuel mandates would otherwise incentivise greater uptake. Demand could rise outside Europe if biodiesel prices were to fall below diesel equivalents, although the EU typically remains a net import market.
The scale of the gasoil rally — and the broader market shock caused by the war — has prompted calls in other regions to relax blending limits. Brazil's Parliamentary Front for Biodiesel is stepping up lobbying to raise the national blend to 16pc (B16) from 15pc (B15), arguing that US-Iran tensions will raise global refined product prices.
Outside the road sector, marine biodiesel remains uncapped. Strong gains in marine gasoil (MGO) have pushed pure biodiesel (B100) into a more competitive position, with Argus-assessed B100 Advanced Fame dob Netherlands now at a discount to MGO dob ARA once Emissions Trading System (ETS) costs are factored in. Shipowners may look to cover some of their volumes with B100 where logistics allow.
But for now, demand has not surged. Many buyers are delaying non-essential refuelling because of extreme crude and gasoil price volatility — even though the B100–MGO discount has widened beyond $150/t and MGO prices have risen to their highest levels since 2023.
