Biofuels Markets Find Their Footing Amid Fragile Iran Ceasefire

Despite being underpinned by continued military pressure and an oil blockade, the return to US–Iran peace talks has helped take some of the heat out of global energy markets.

While far from a full resolution, the combination of a brittle ceasefire and renewed diplomacy has reduced near-term volatility. This brings a degree of stability back to refined product pricing.

That shift has been particularly visible in gasoil. According to Prima CarbonZero data, Northwest European gasoil values have consolidated just above $1,100/t, tracking a broader cooling across energy markets following last week’s tentative ceasefire.

For biofuels, this change matters. The extreme swings in gasoil seen in recent weeks had made it exceptionally difficult to price biodiesel and HVO premiums with any confidence.

With underlying values stabilizing, European biodiesel premiums have begun to adjust higher. The immediate threat of negative premiums has receded, and the market is starting to reprice risk more rationally.

Liquidity Returns as Pricing Visibility Improves

Greater clarity around gasoil pricing also had an impact across the biodiesel complex: liquidity is returning.

In recent weeks, uncertainty around outright prices made it difficult for traders to assess blending economics or take meaningful positions. As volatility eases, participants are better able to evaluate margins, hedge exposure, and re-engage with the market. The result is a gradual normalization in trading activity.

Risk Premiums Persist Beneath the Surface

Despite this stabilizing pattern, it would be a mistake to interpret this as a return to normalcy.

At $1,100/t, gasoil still embeds a substantial geopolitical risk premium. That number is up roughly 67% compared to late February, before the escalation in the Middle East. While prompt markets have calmed, the forward curve continues to reflect lingering uncertainty.

Backwardation in futures suggests expectations of easing disruption and recovering oil supply. However, prices one year out remain elevated at nearly $200/t above pre-war levels. In other words, while the market is pricing improvement, it is not pricing a return to the status quo.

Biofuels Remain Structurally Low-Priced

This disconnect has left biofuels historically low-priced relative to other commodities, both spot and forward.

Compressed premiums have significantly reduced the cost of compliance, particularly in European mandate markets. As confidence in underlying energy pricing improves, the market appears increasingly primed for a recovery in liquidity heading into the summer.

A key variable remains regulatory clarity. Particularly, the delayed publication of Germany’s mandate continues to act as a bottleneck preventing demand from fully materializing.

Inventory Overhang and Shifting Feedstock Dynamics

On the ground, traders report a market still weighed down by elevated inventories. Many participants built positions last year in anticipation of stronger 2026 mandates, leaving the system long product in the near term.

In response, blenders are working through stocks of UCOME and Annex IX A FAME, capitalizing on the steep discount to HVO and leveraging remaining double-counting mechanisms. This dynamic is reinforcing demand for lower-cost biodiesel pathways while limiting near-term upside for HVO in certain segments.

At the same time, HVO producers are increasingly shifting toward Annex IX B feedstocks. Capacity utilization in this segment has risen markedly compared to last year. This is supported thanks to a tightening global supply picture.

Imports are becoming less competitive due to a combination of multiple factors:

• Tariffs

• Record US Renewable Volume Obligation (RVO)

• Ongoing Shipping Disruptions from Eastern Biofuel-Producing Regions

Together, these pressures are tightening global supply availability and reinforcing stronger domestic utilization across key biofuel markets.

A Market Stabilizing But Not Settled

Taken together, the biofuels market is entering a period of relative calm. But it is important not to conflate this calmness with overall market stability.

The current stability in energy markets is contingent on a fragile geopolitical backdrop. While ceasefire conditions and ongoing negotiations have reduced immediate volatility, the risk of renewed disruption remains firmly in play. This holds particularly true around key oil transit routes.

For biofuels, this creates a nuanced environment: improved pricing visibility and rising liquidity on one hand, but persistent structural uncertainty on the other. How the market navigates this balance will define trading conditions in the months ahead.

Watch our On-Demand Webinar, Biofuels Market Update Q2 2026, for an expert-led breakdown of all the critical factors currently impacting biofuels and feedstocks.