On petroleum and other oleum.
As the Middel East conflict further undermines global economic activity, predicting its outcomes or consequences is extremely difficult and risky. As is speculation regarding if, when and how quickly Iranian resistance might weaken. Petroleum prices should be heading towards $200 but as yet didn't, LNG remains relatively cheap, and prices for edible oils and fats have not (yet?) reached levels seen in 2022 when the war in Ukraine broke out.
The market seems in a wait-and-see attitude and is delaying buying decisions. This may be because the situation is considered temporary, or due to fears of a drop in demand at higher prices.
Petroleum has been the primary driver of market volatility, and most markets are holding their ground but lack the conviction to rise further. The underlying fundamentals for oils & fats are not overly bearish, but a big upward move requires more economic stability and clearer demand signals. There is a strong demand outlook from the biofuel industry, but the war has clearly disrupted the economy, and there are record stocks of edible oils and fats this season.
The crisis has unprecedented consequences and, on the one hand, acts as a catalyst to speed up certain decisions and strategic shifts. On the other hand, it sometimes leads to paralysis due to short-, medium- and long-term uncertainties.
Some companies are reluctant to increase production and adopt a wait-and-see approach. Too high prices could trigger a collapse in demand (like in the financial crisis) and longer-term instability. Market volatility makes it difficult to make intelligent decisions.
Fuel shortages are already beginning to emerge in some Asian countries and even in Australia. Thailand has reduced palm oil exports since mid-March and raised the biodiesel blending requirement from 5% to 7% to reduce its reliance on imported fossil diesel. South Korea is contemplating public driving restrictions; India is speeding up on wind farms…
Japan wants to ramp up coal-fired electricity generation due to a shortage of liquefied natural gas (LNG). The 50% maximum capacity utilization limit for coal-fired power plants could be lifted beginning in April.
In the EU, member states are speeding up the integration of the EU-RENURE legislation ("nitrogen recovered from manure") into their national regulations. Using renure as a substitute for fertilizers helps moderate rising fertilizer prices (produced with natural gas) and reduce dependency on imports. Until recently, this was prohibited by EU legislation, meaning that even countries with a surplus of manure were forced to use artificial fertilizers. This is a step towards a more circular agriculture.
And some petrochemicals could start to get scarce which should benefit some oleochemicals.
A relatively quick end to the conflict would naturally limit the adverse economic consequences, but concerns about the longer-term impact are clearly beginning to weigh on the mood. The longer the crisis lasts, the greater the consequences will be, and there are very real, physical manifestations in the global economy that have not yet been fully factored into prices.
Markets
Petroleum
Ideas were already circulating that energy is dramatically overbought and that prices, with a war premium, were already factoring in continued supply disruptions from the Middle East. Although it may take months for global fuel prices to fall, it was thought that reopening the Strait of Hormuz within a few weeks after a potential Iranian capitulation would be easy. And it was pointed out that net speculative and fund-long positions in petroleum are at their highest in 30 months; if they sell, things could move fast.
But last week, prices of petroleum and distillates rose sharply due to fears of a prolonged war that could spread throughout the Middle East, and on concerns about reduced Russian exports capabilities as a result of the conflict in Ukraine.
The International Energy Agency (IEA) reported that more than 40 energy facilities in nine countries in the Middle East have been "severely" damaged. Russian producers warned they may invoke force majeure for deliveries from various Baltic ports following Ukrainian drone attacks. The Ukrainian attacks have severely impacted Russian crude oil export capabilities, and since late last year, Ukraine has stepped up attacks on Russian tankers.
Meanwhile petroleum demand in India continued to rise, with an increase of 3.1% year-on-year to 5.6M barrels/day. The country's economic growth and the growing middle class drive this increase and put India on track to become the world's third-largest petroleum consumer after China and the US.
As demand in developing countries continues to rise, production remains in the hands of a handful of players, and supply vulnerability persists. Even with an increased focus on the energy transition, the economic and geopolitical importance of petroleum, is far from over.
Palm oil
Strong export demand supported price enthusiasm when cargo surveyors reported that March 1–25 shipments were up abt. 45% from February. Firming petroleum prices boosted prospects for biofuel demand; especially with nearby gasoil prices at $1370/mt (if available) and crude Indonesian palm oil prices of $1215/mt. But caution capped the rise on anticipated weaker demand from India and weaker economic data from China, due this week. Also, historically record inventory in Malaysia keeps adding bearishness as crude palm oil production is to seasonally pick up again and keep growing in the following months.
Soybean oil
The soy complex weakened last week and on Friday there was a downward reaction to several positive announcements during the White House Celebration of Agriculture event. Beans fell by 2 cents on the week, meal for May delivery dropped by $12.50, while oil rose by 190 points.
When a market reacts negatively to positive news, that is a bad sign. The announcement regarding the RVO (Renewable Volume Obligations) had been expected for over a year, and the markets showed profit-taking, as the news had already been priced in. Not really a surprise and rather a "buy the rumor, sell the fact" movement. Even the sharply higher petroleum prices failed to boost soybean prices on Friday.
The market is now awaiting reports from the USDA on projected planting and quarterly stocks on Tuesday March 31. Some of the biofuel policy and China buying or not will be reflected in the coming USDA reports. The US-China summit in Beijing has been rescheduled to mid-May and the delay sparked new uncertainty on relations between the two countries and on China buying additional soybeans.
The EPA published the final Renewable Fuel Standard Renewable Volume Obligations for 2026 and 2027. Blend levels for biomass-based diesel (biodiesel + renewable diesel) were increased by nearly 60% compared to 2025 volumes, largely in line with expectations. But the fact that also foreign biofuel feedstocks will still fully benefit from the RINs through 2028 is not that positive for US soybean oil demand. Although for global edible oils and fats demand this should be somewhat bullish news. Only starting in 2028 foreign fuels and feedstocks will receive half the compliance value for the RFS (renewable fuel standard) compared to domestic products.
A big question remains: how long can the US bean and oil market stay so much more expensive compared to South America? Us soybeans are $30/mt more expensive than Brazilian beans and US soy oil is about $290/mt over Argentina FOB export prices. Somehow, sometime, the global market will correct this artificial situation. And whatever beans China buys in the US, they won't buy in South America. And whatever soy oil is used in US biodiesel will pull in import, like Canadian rape oil, for either biofuels, food or oleochemicals production.
In the second half of April, the soybean harvest in Argentina will be in full swing, which will provide an additional supply of beans, meal and oil!
Rapeseed oil
Rapeseed prices continue to fluctuate, influenced by the volatility of petroleum prices. Rising seed prices and the risk of sharply rising energy prices call for caution. Rapeseed oil prices are currently torn between an expected demand increase from the biofuel industry and ample stocks. In N-W EU, rapeseed crush has even led to a temporary oversupply of rapeseed oil, which has only partially followed the rise in diesel prices. The current unusually large price differences between diesel and rapeseed oil are likely to be temporary.
The Canadian Canola Council welcomed the finalized US biofuel policy and commented: "there does not appear to be anything preventing the country's canola oil from helping to meet the feedstock demand for the US Environmental Protection Agency's final Renewable Volume Obligation blending rule for biomass-based diesel".
Sunflower seed oil
The Argentinian crop is now over 60% done and seed crushing in 2026 is expected to reach 5.2Mmt compared to 4.6Mmt in 2025.
In EU the 2025 crop has been estimated at 8.4Mmt and this year's output is expected to reach 9.9Mmt, weather permitting, its highest level since 2021. So far, favorable weather in EU is supportive for the upcoming sowing campaign.
Planting season in the northern hemisphere is approaching and sunflower is not an as high-fertilizer-dependent crop as for instance corn and wheat are. And it is likely that farmers are going to plant more sunflowers if and where they can in order to save money on expensive fertilizers.
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