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Soybean oil was the upside leader in the ag markets Tuesday, with May surging 251 points, or 3.6%, for the highest close for a nearby contract since December 2022, taking a cue from a surge in heating oil – a proxy for diesel fuel. The rally puts the spotlight on growing biofuel demand as a result of the fuel price surge sparked by the Iran war.
And it isn’t just a U.S. phenomenon.Biofuels are enjoying a surge of renewed demand triggered by the war, which has disrupted around 20% of global crude and natural gas supplies, which typically pass through the Strait of Hormuz.The waterway’s closure is on track to cost the world at least 1 billion barrels of lost production of crude and products by one estimate (see item below).
Reuters reported that countries in Asia that are heavily dependent on Middle East oil imports, have significantly sought to boost biofuel use since the beginning of the war.
The report noted:
- Vietnam said in late March it would switch fully to ethanol-blended gasoline from April due to the energy price surge, accelerating a previous target of June 1.
- Indonesia has said it will raise the mandatory blending rate for biodiesel made from palm oil to 50% from 40%. Indonesia is the world’s largest producer and exporter of palm oil.
“I expect the crisis to give the Asian biofuel sector a boost,” International Sugar Organization senior economist Peter de Klerk told Reuters, observing that India was planning to increase the amount of ethanol blended into gasoline, while Thailand was also looking at its ethanol options.
Ceasefire extended:. President Donald Trump on Tuesday afternoon extended the U.S. ceasefire with Iran just hours before its expiration, and said in a social media post that the blockade of the country’s ports would continue as Washington awaits a “unified proposal” from its leaders. Earlier, Vice President JD Vance put plans to travel to Pakistan on hold, the Wall Street Journal reported. The report said that according to one person, President Trump was considering canceling the trip altogether due to Tehran’s unwillingness to concede to his demands on nuclear enrichment, while another said the decision was due to Iran failing to commit to the meeting.
Jitters ahead of the ceasefire expiration had lifted oil futures, with Brent crude finishing up 3.1% at $98.48 a barrel after coming within a few cents of the $100 threshold. West Texas Intermediate crude for May delivery went off the board at $92.13 a barrel, up 2.8%, according to Dow Jones Newswires.
Fed succession focus: Financial market participants were keeping one eye on the Middle East and one eye on Washington Tuesday, specifically the confirmation hearing for Kevin Warsh, President Donald Trump’s pick to succeed Jerome Powell as chair of the Federal Reserve.
Trump has repeatedly berated Powell for not moving to quickly lower interest rates and has often stated his desire for the next Fed chief to act on his wishes. Actions by the administration, including a criminal probe of Powell tied to cost overruns on a remodeling of the Fed’s headquarters and allegations of mortgage fraud by administration officials against Fed Gov. Lisa Cook, have also been tied by detractors, including Republican Sen. Thom Tillis of North Carolina, to efforts to intimidate the Fed. (Powell and Cook have denied any wrongdoing, also describing the moves as efforts to sway policy.) So it’s no surprise that much of the hearing centered on Warsh’s views on central bank independence.
He told lawmakers that Trump hasn’t pressured him on policy decisions.
- “The president never asked me to predetermine, commit, fix, decide on any interest-rate decision in any of our discussions, nor would I ever agree to do so,” Warsh said.
The Fed chief doesn’t set rates by fiat, of course. Policy is decided by the rate-setting Federal Open Market Committee. Despite Trump’s pressure for lower interest rates, rates traders have taken their cue from fears the surge in oil prices and the potential for a broader inflationary surge will keep the Fed on hold. The CME’s FedWatch Tool shows traders have priced in a roughly 70% probability the fed funds rate will remain unchanged through year-end.
‘Gift from China’: The surge in soybean oil may have insulated soybean futures from remarks by President Donald Trump expressing ire with China over what he implied was military aid to Iran.
- “We caught a ship yesterday that had some things on it, which wasn’t very nice, a gift from China perhaps, I don’t know,” Trump told CNBC in an interview. “But I was a little surprised…because I have a very good relationship, but I thought I had an understanding with President Xi [Jinping], but that’s all right. That’s the way war goes”
China’s foreign ministry denied the allegation, according to the South China Morning Post. “To my knowledge, this is a foreign-flagged container ship. China opposes any malicious links and hype,” foreign ministry spokesman Guo Jiakun said.
Traders have been nervously watching U.S.-China relations ahead of a mid-May meeting between Trump and Xi. Market bulls are looking for affirmation China will follow through on what the White House has said is a commitment to buy 25 million metric tons of soybeans a year. Given a shaky pace of exports recently, any breakdown in relations could leave the market vulnerable to weakness.
Billion barrels lost: The oil market will lose at least 1 billion barrels of crude and refined products due to the war, even if the conflict ended tomorrow, said the head of the world’s largest independent oil-trading firm.
Speaking at the FT Commodities Global Summit in Lausanne, Switzerland, Hardy said attacks on energy infrastructure in the Gulf and the halt to traffic through the Strait of Hormuz resulted in the los of around 12 million barrels of oil production a day since the war began at the end of February, the Financial Times reported.Hardy said the war was undoubtedly the biggest disruption suffered by energy markets in his almost 40-year career, even overshadowing the shock in 1990 that followed Iraq’s invasion of Kuwait.