-- (Corrects 20th paragraph to show Arugus estimate.)
The Middle East conflict has disrupted global crude oil supplies, pushing prices higher and, in turn, raising awareness of the benefits of biofuels, giving longer-term strength to alternative fuel feedstocks such as soybean oil.
The elevated oil prices appear to be boosting demand for biofuels, with the UN's vegetable oils index rising 5.9% from March to its highest level since July 2022, Bloomberg reported on Friday.
Some biofuel industry analysts toldthat there is political appetite to produce more fuel at home, driven by national security interests.
Jacqui Fatka, a CoBank Economist, said countries around the world are taking actions to diversify their dependence on foreign oil supplies.
"Brazil is taking the same push to expand its ethanol and biodiesel blends as Europe, Indonesia, and Malaysia are. These countries recognize that higher biofuels blending does not occur overnight, so infrastructure and plant expansions need to allow for the scaled-up use," Fatka said in an emailed response to.
Because higher biofuel blending takes time to ramp up, these countries are beginning to expand their infrastructure and plants.
Fatka noted that decisions now to push to higher biofuel blends mean there will not just be a short-term increase in oil feedstocks, but rather a longer-term build-out.
"It may not have anything to do with how long the Iran war lasts. If economics or policy mandates point toward higher use, that will be the driver worldwide, just as it is here in the US with the higher Renewable Volume Obligations established at the end of March for the next two years," Fatka said.
Additionally, the Middle Eastern conflict has made sustainable aviation fuel more competitive with jet fuel.
"SAF generally costs between 2 and 5 times more than fossil jet fuel. Higher jet fuel costs have narrowed the gap, but SAF remains expensive," Fatka said.
When purchasing SAF, buyers first cover the standard cost of conventional jet fuel, which serves as the baseline. In addition, they must pay an extra premium for SAF, she said.
"The Iran conflict and resulting surge in crude oil prices may lead to some airlines looking to diversify their fuel supplies. Higher fuel costs also incentivize the need to find ways to lower that cost gap," the CoBank economist said.
Though soaring diesel costs will see countries exploring raising their blend mandates, the story of a surging soybean oil market may be about what biofuel changes are happening in the US, Zander Capozzola, Principal Consultant at Argus Media Consulting Services, told.
"The soybean oil story is more about the recent record biomass-based diesel mandates and the Environmental Protection Agency's Renewable Fuel Standard's SET 2 rules for 2026-2027, rather than global blend increases. If you look at feedstock pricing globally, US soybean oil, tallow, used cooking oil, and distillers' corn oil are vastly outpacing other countries," Capozzola said.
The US Department of Agriculture reported that while total use is down, the share of soybean oil in total feedstocks used for biomass-based diesel production rose to 43% in January, the highest since July 2023 and 10% above the last 12-month average, with less tallow and canola oil used.
The reason so much of this strength centers on soybean oil is that starting in 2026, its indirect land use change penalty was removed for 45Z credit scoring, allowing it to earn about $0.55 per gallon, according to Argus estimates this year, compared with $0.25/gal last year when the ILUC penalty was in place.
"This additional credit value is crucial for spurring domestic soybean oil consumption. Meanwhile, all foreign feedstocks outside of Mexico and Canada are not eligible for any 45Z value," Capozzola said.
The second important component of the soybean oil rally and increased biofuels demand is tied to D4 biomass-based diesel renewable identification number prices.
"D4 RINs have breached record highs and show no signs of slowing, allowing for the biofuels sector to absorb higher cost feedstock prices even should diesel prices fall. The D4 RIN price broke the $2.00/RIN mark on May 1," Capozzola said.
The strength in D4 credits has seen renewable diesel margins surge 185% to start the year, according to Argus estimates. The D4 RIN can be used to show compliance for both bio-based diesel, also known as BBD, and ethanol.
Capozzola said that with back-to-back record BBD mandates, a growing shortfall in domestic ethanol consumption relative to mandates, and a lack of spare BBD capacity, "RIN strength is structural and will support a very robust soybean oil market until 2028, when the EPA considers Set 3 - setting the 2028-2029 mandates."