Bio-Bunker Premiums Rebound as Oil Market Disruption Eases

The oil price shock triggered by the outbreak of US-Iran hostilities in March created an unusual, albeit temporary, shift in the economics of bio-bunkering.

According to a Prima CarbonZero analyst report, fears over energy supply intensified as conventional marine fuel prices surged. Very-low-sulfur fuel oil (VLSFO) climbed sharply in Rotterdam as markets priced in the risk of disruption to oil flows through the Strait of Hormuz. Biofuel benchmarks also moved higher, but not at the same pace.

For a time, that narrowed the premium shipowners and fuel buyers had to pay to use bio-bunker blends instead of conventional fuel. Now, those conditions are reversing.

Oil Supply Fears Have Receded

Energy markets have begun to discount the likelihood of severe, prolonged supply disruption as more vessels resume transit through the Strait of Hormuz. As a result, oil product prices have retreated substantially from their wartime peaks.

VLSFO prices in Rotterdam remain above their prewar levels, but the most extreme price increases have subsided. Meanwhile, European biofuel benchmarks have experienced a more modest pullback and have settled at comparatively elevated levels.

The result is a renewed divergence between conventional bunker fuel and biofuel prices.

During the height of the conflict, rapidly rising oil prices temporarily improved the relative economics of bio-bunkering. With VLSFO now falling faster than European biofuel benchmarks, that advantage has largely disappeared.

Bio-Bunker Premiums Return to Prewar Levels

The extreme dislocations across fuel oil and wider petroleum markets during the conflict have now eased. Biofuel premiums, the additional cost of choosing a bio-bunker blend over conventional marine fuel, have consequently returned to levels broadly consistent with those seen before the war.

For buyers, this means the incremental cost of bio-bunkering has increased again in recent weeks.

The temporary narrowing between biofuel and fossil fuel prices offered shipowners a window in which lower-carbon fuels became more economically attractive on a relative basis. That window is now closing as conventional bunker prices normalize more quickly.

However, price premiums alone do not determine bio-bunker demand.

Regulation Is Redefining the Demand Equation

The effect of higher premiums on future bio-bunker volumes remains uncertain because marine fuel blending decisions are influenced by more than spot-market economics.

Regional differences are already evident. Bio-bunkering activity in markets such as China remains weak despite ample feedstock availability. In Europe, however, regulatory requirements continue to provide a structural source of demand.

The FuelEU Maritime Regulation entered into force in 2025, requiring ships calling at European ports to progressively reduce the greenhouse gas intensity of the energy they use. At the same time, maritime transport is being phased into the EU Emissions Trading System (EU ETS).

From the 2026 reporting year, covered shipping emissions are subject to the full EU ETS obligation. These policies increase the value of fuels that can reduce a vessel's reportable emissions or greenhouse gas intensity, supporting bio-bunker demand even when the outright price premium rises.

This regulatory pressure means that European demand may prove more resilient than a simple comparison between VLSFO and biofuel prices would suggest.

Bio-Bunkering Economics Are Normalizing in a Changed Market

The economic boost that bio-bunkering received from surging oil prices appears to have faded. VLSFO has fallen sharply from its conflict-driven peak, while European biofuel benchmarks have remained comparatively firm. This dynamic has pushed bio-bunker premiums back toward prewar levels.

That makes the immediate cost case for bio-bunkering less favorable than it was during the height of the disruption. Yet the broader demand outlook cannot be assessed solely from spot prices.

FuelEU Maritime, the full phase-in of shipping under the EU ETS, and voluntary corporate climate commitments continue to create demand for lower-carbon marine fuels. Rotterdam's recent growth suggests that these structural forces may outweigh price premiums for at least part of the market.

The upcoming second-quarter volume data will help reveal whether that resilience held during one of the most volatile periods the marine fuel market has experienced in recent years.

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