High crude prices and a steep backwardation in the futures curve are tightening diesel markets and accelerating policy moves towards higher biofuel use, with Indonesia, Brazil and the US all shifting gears. This is set to ripple back into agricultural markets via stronger demand for vegetable oils, grains and sugar.
Crude benchmarks have surged into the high double digits, with nearby WTI and Brent well above forward contracts, signalling acute near‑term tightness in physical oil and middle distillates. Against this backdrop, several large fuel‑consuming countries are revisiting biodiesel and ethanol mandates, both to limit import dependence and to support domestic farming sectors. Indonesia is reviving its B50 plan, Brazil’s soy industry is lobbying for higher blending, and new US rules will sharply increase biodiesel demand, re‑routing vegetable oils and cereals away from food and feed and into energy.
📈 Prices & Curve Structure
The NYMEX WTI May 2026 contract settled at about USD 98/bbl on 13 April 2026, while ICE Brent June 2026 closed just above USD 98/bbl. Converted at roughly 0.94 EUR/USD, this implies front‑month WTI and Brent around EUR 92–93/bbl.
The futures curves for both benchmarks are sharply backwardated: WTI falls from roughly USD 98/bbl (≈EUR 92/bbl) for May 2026 to about USD 61/bbl (≈EUR 57/bbl) by December 2031, while Brent declines from about USD 98/bbl (≈EUR 92/bbl) in June 2026 towards roughly USD 69/bbl (≈EUR 65/bbl) in late 2031. ICE low‑sulphur gasoil also trades elevated, with May 2026 near USD 1,164/t (≈EUR 1,094/t), reflecting tight diesel supply.
| Benchmark | Nearby contract | Price (EUR) | Far-dated (EUR) |
|---|---|---|---|
| WTI Crude | May 2026 | ≈ 92 €/bbl | Dec 2031 ≈ 57 €/bbl |
| Brent Crude | Jun 2026 | ≈ 92 €/bbl | Dec 2031 ≈ 65 €/bbl |
| ICE Gasoil | May 2026 | ≈ 1,094 €/t | Dec 2028 ≈ 646 €/t |
🌍 Supply, Demand & Biofuel Policies
If crude prices remain near current levels in the coming months, demand for biodiesel and bioethanol is likely to rise as governments and the farm sector seek alternatives to expensive fossil fuel. Any physical tightening of crude, including delivery bottlenecks, would further reinforce this substitution effect and tighten agricultural commodity balances.
Several key regions are already adjusting policy. Indonesia, the world’s largest palm oil producer, had paused its plan to raise the biodiesel blend from 40% to 50% due to surging subsidy costs when oil prices fell in 2025 and the blend moved from 35% to 40%. With oil prices now having jumped sharply again in March, President Prabowo Subianto has reversed course and announced that the B50 target will be implemented this year.
Indonesia finances the biodiesel subsidy by closing the price gap between palm‑based biodiesel and fossil diesel, using export levies on palm oil, cocoa, coconut and derivatives. As lower crude in 2025 coincided with a higher blending ratio, subsidy costs soared from USD 1.1 billion in 2023 to USD 3.1 billion in 2025. The latest oil price spike improves biodiesel’s competitiveness and makes the higher blend politically and fiscally more acceptable.
In the European Union there are so far no concrete initiatives to increase crop‑based biofuel use despite high oil prices and low farm‑gate grain prices. Agriculture Commissioner Christophe Hansen has argued publicly for relaxing constraints on biofuels in such situations, but the Commission is not preparing new legislation. Implementing his ideas would require changes to the Renewable Energy Directive (RED III) and the Fuel Quality Directive and thus remains a medium‑term rather than immediate response.
Brazil currently blends 15% biodiesel into diesel fuel and has a law (“Combustíveis do Futuro”) targeting a stepwise rise to 20% by 2030. A planned 2026 increase from 15% to 16% was postponed, officially because feasibility studies were delayed and unofficially due to concerns that higher biodiesel demand would push up soya oil prices, a key food staple. The soy industry, however, points to a record soybean harvest and argues that domestic biodiesel from soya oil is now price‑competitive, with imported diesel more expensive than local biodiesel in March.
In the US, the Environmental Protection Agency published new Renewable Fuel Standard (RFS) rules on 27 March for 2026–2027. These imply roughly a 60% increase in biodiesel use versus last year, likely pushing the biodiesel share of the diesel pool above 10%. The reform is aimed less at crude prices and more at supporting soybean growers hit by sharply lower Chinese imports since 2025, which have swelled US soybean stocks.
From 2028, foreign fuels and feedstocks will count only half as much as domestically produced material towards RFS compliance. This will give US soya oil a strong competitive edge over imported canola oil from Canada, palm oil from Southeast Asia or used cooking oils from China, incentivising domestic biodiesel capacity expansion and adding a structural demand pillar for US vegetable oils.
On the ethanol side, the US is content to maintain blending around 10%. Production reached a record 16.49 billion gallons in 2025, with the sector increasingly relying on booming exports rather than higher domestic blends. Countries like India are also expanding ethanol use aggressively to cut crude import dependence: its gasoline ethanol blend has risen from 1.5% in 2014 to around 20% in 2025, with a 30% target by 2030, using maize and sugarcane and, increasingly, agricultural residues.
📊 Fundamentals & Cross-Commodity Links
The combination of high near‑term crude prices, backwardated curves and escalating diesel premiums is tightening the middle‑distillate market and making biofuels more attractive. Where mandates or support schemes are in place, this quickly translates into additional demand for palm oil (Indonesia), soya oil (Brazil, US) and maize, wheat and sugar (ethanol feedstocks in the US, EU, India and others).
In Indonesia, renewed commitment to B50 will structurally lift palm oil demand and reduce diesel import needs. In Brazil, any acceleration of the biodiesel schedule above the currently delayed path would further absorb the record soybean crop and limit downside in soya oil prices. In the US, the stronger RFS biodiesel component together with penalties on foreign feedstocks from 2028 will reorient trade flows in vegetable oils and potentially tighten global supplies for food markets.
For grains and sugar, sustained high crude and expanding ethanol programmes, especially in India and in export‑oriented US plants, will increase competition between fuel and food uses. While the EU is currently cautious on crop‑based biofuels, any future policy shift there would amplify this effect, particularly for wheat, maize and sugar beet. Overall, energy‑linked demand is becoming a more important driver of agricultural price formation.
📆 Short-Term Outlook & Weather Angle
Given the pronounced backwardation, the market is signalling that current tightness in crude and diesel is more acute in the short term than in the long term. If spot prices remain near present levels and no major demand shock occurs, policy‑driven increases in biofuel blending in Indonesia and the US are likely to materialise through 2026–2027, keeping diesel and vegetable oil markets relatively tight even if crude eases somewhat along the forward curve.
Weather risks will matter mainly through their impact on feedstock crops rather than directly on crude supply. The focus is on palm oil regions in Southeast Asia and soy and maize belts in the Americas and India. Any adverse conditions could quickly feed back into biodiesel and ethanol margins and, indirectly, into the cost structure of transport fuels globally.
📌 Trading Outlook
- Crude & products: The steep backwardation argues for caution with long positions further out the curve; nearby strength is supported by diesel tightness and policy‑driven biofuel demand.
- Biofuel feedstocks: Palm oil and soya oil stand to benefit from higher mandated blends in Indonesia, Brazil and the US; dips in these markets may offer value given policy support and strong energy linkages.
- Grains & sugar: Elevated crude and expanding ethanol use, especially in India and via US exports, are a bullish structural factor that could cap downside in maize and sugar if energy markets stay firm.
📍 3-Day Directional View (EUR-based)
- WTI (front month, ≈92 €/bbl): Bias moderately firm; support from diesel strength and biofuel news, but vulnerable to profit‑taking after the recent spike.
- Brent (front month, ≈92 €/bbl): Similar firm bias with slight upside risk if physical tightness persists in Atlantic Basin crude and products.
- ICE Gasoil (front month, ≈1,094 €/t): Upside skew given strong diesel demand and reinforced biofuel policies, though volatility around macro headlines remains high.
