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The ongoing conflict in the Middle East extended soybean oil’s rally during the week ending March 13, as continued disruptions to global diesel markets enhanced biofuel producer margins and intensified competition for feedstocks. Chicago soybean oil futures climbed from 66.2 cents per pound to 67.3 cents per pound by March 12, a weekly increase of approximately 1.7%.
The sustained rally was driven primarily by ongoing disruptions in global energy markets, where heating oil futures surged more than 7% past $3.96 per gallon during the week, marking the highest level since June 2022.
The energy market’s dislocation stems from the effective closure of the Strait of Hormuz, which handles approximately 20% of global oil trade. Iran’s new Supreme Leader, Mojtaba Khamenei, stated in his first public statement that the Strait of Hormuz should remain closed, extending bets on the duration of supply disruptions after multiple tankers were hit by projectiles overnight.
This defiant rhetoric coincided with strikes of increasing intensity between Iran and regional adversaries, forcing major Persian Gulf producers to sharply cut output as storage capacity was reached. The International Energy Agency stated that the disruption was the largest in history and triggered a record 400-million-barrel release of strategic stockpiles, though traders remain skeptical that these volumes can bridge the massive daily supply gap. Heating oil’s rally over the past month totaled 62%, with prices climbing from approximately $2.40 per gallon in mid-February to nearly $4.00 per gallon by the end of the week.
The diesel price rally has created a potentially favorable environment for global biofuel policy support, as higher diesel prices improve biofuel producers’ margins and underscore the value of domestic feedstock production in mitigating energy price volatility.
Current renewable diesel production economics suggest significant upside potential for soybean oil prices based purely on biofuel industry fundamentals. Fastmarkets’ assessment of renewable diesel producer margins indicates that at current levels, accounting for non-feedstock costs, fuel values, and the full credits stack including California’s Low Carbon Fuel Standard (LCFS), Cap and Trade allowances, and the federal 45z tax credit, soybean oil could theoretically reach approximately 78 cents per pound before renewable diesel producers hit breakeven.
This theoretical implied price represents a potential increase of roughly 10 cents per pound from the current level of 67.7 cents per pound, assessed on March 12. While this is a theoretical exercise rather than a prediction, it points to a key market dynamic: at current biofuel margin levels, renewable diesel economics could support substantially higher soybean oil values without eliminating producer profitability.
Despite favorable biofuel economics driven by the energy market rally, the USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report, released on March 10, painted a more cautious picture for soybean oil demand in the biofuel sector. USDA trimmed its 2025/26 soybean oil use forecast for biofuel production by 800 million pounds in the March WASDE, reflecting ongoing policy uncertainty and reduced consumption observed in recent months.
The reduction came even as USDA raised the 2025/26 soybean crush forecast by 5 million bushels to 2.575 billion bushels, driven by strong processing margins. However, the agency cut soybean oil production by 20 million pounds to 29.9 billion pounds due to lower oil extraction rates at crush facilities, partially offsetting the increased crush volume.
To balance the lower biofuel use projection, USDA added 750 million pounds of food, feed, and other uses to the soybean oil balance sheet, resulting in a 50-million-pound decrease in total 2025/26 usage. Despite the demand reduction, USDA increased its season-average price forecast for soybean oil by $0.02 per pound to $0.55 per pound, citing spillover strength from the energy complex amid geopolitical escalations in the Middle East and shipping closures in the Strait of Hormuz.
The WASDE revisions underscore the tension between robust biofuel margins, which could support higher feedstock demand, and policy uncertainty that has kept actual consumption below potential in recent months. Policy uncertainty remains a key factor constraining soybean oil usage for biodiesel, which dropped to a nine-month low of 859 million pounds in December 2025.
However, the outlook for 2026-27 soybean oil use in biofuel production has improved, with industry forecasts suggesting U.S. soybean oil usage in biofuel production could increase by approximately 17% in 2026-27, driven by the combination of favorable renewable diesel margins, supportive policy developments, and the ongoing transition back toward vegetable oil feedstocks following the 45z revisions.
Fastmarkets expects soybean oil prices to remain elevated in the near term as the market continues to price in the conflict in the Middle East. The duration of the conflict remains the key variable for timing an inversion of current price dynamics in the energy markets and soybean oil.
Fastmarkets’ price forecast anticipates crude soybean oil FOB Central Illinois will average 65.25 cents per pound in April 2026, with prices gradually declining to a range of 62-64 cents per pound through early 2027 as the geopolitical risk premium embedded in energy markets moderates. The current price outlook assumes the Iran conflict does not escalate into a prolonged supply disruption and that alternative crude oil export routes can partially mitigate the Strait of Hormuz closures.
On the bullish side, if the conflict persists or intensifies, further gains in diesel and heating oil prices could extend the favorable margin environment for biofuel producers, supporting additional upside for soybean oil prices toward the implied ceiling of 78 cents per pound based on renewable diesel economics. The interplay between energy market developments and biofuel policy support will determine whether soybean oil can sustain prices above historical norms in the months ahead.
On the Fastmarkets platform, you can find daily soy oil spot price assessments reflecting the fair market value at the most liquid point of the nearby market and forward curves, reflecting the fair market value of physical cargo for loading or delivery up to 9 months forward. Discover more.