A supply shortage in feedstocks used to produce cleaner road, rail and air transportation fuel could be exacerbated in the European Union (EU), one of the world’s largest markets for biofuels, by growing demand stoked in large part by stricter environmental policies in the region.
The mandated demand for renewables under the latest iteration of the Renewable Energy Directive (RED III) necessitates the production of advanced products such as Renewable Diesel as this enables the suppliers to blend beyond the aforementioned B7 limits.1 A similar situation is occurring for Sustainable Aviation Fuel, where a growing share of jet fuel sales must be made from renewable sources. This continued increase in demand for renewables across all transport sectors, spearheaded by biofuels, is creating a supply crunch in the supply of feedstocks.
Higher demand from hydrotreating biofuel producers is creating potential supply disruptions on the feedstock side with many producers chasing the high-cost waste and residue feedstocks compared to the cheaper crop-based alternatives. The more advanced transport fuels, such as Sustainable Aviation Fuel or Renewable Diesel, are where some of the supply tightness is occurring with producers chasing many of the same feedstocks. Many of these feedstocks have risen sharply in the price in the past couple of years or so, according to industry analysts.
The uncertainty over feedstock supply, which is likely to put further pressure on biofuel profit margins, combined with goals to decarbonize are elevating price volatility, leading to potentially higher volumes in Soybean Oil futures and options at CME Group and other related products.
The latest Argus Media report shows that total European biofuel consumption is expected to reach around 30.6 billion litres in 2025, up 10% from 2024.2 In the latest iteration of the Renewable Energy Directive, RED III, the cornerstone of the EU’s environmental policies for biofuels, sets a renewable energy target of 42% by 2030. For the first time there is a specific blend target for Renewable Fuels from Non Biological Origin (RFNBO), which includes the use of renewable hydrogen and e-fuels. In the transportation sector, it sets a target of 29% for renewable energy and a 14.5% reduction in greenhouse gas (GHG) intensity. The overall energy target under RED III has increased from 32% to 42.5% compared with RED II, but the target date for implementation has remained at 2030.
Soybean Oil futures remain the go-to hub for bio markets
There are a range of feedstocks used in the European biofuels markets, but none of them offer the same degree of depth of trading book and liquidity as CME Group futures and options on Soybean Oil, traders say. Companies producing biofuels from alternative streams such as wastes or animal fats rely on highly liquid Soybean Oil futures to cross-hedge their price exposure. The price of Used Cooking Oil Methyl Esther (UCOME), which is made from waste feedstocks, is highly correlated with the price of Soybean Oil futures, which are based on an underlying primary vegetable oil feedstock. Used cooking oil is the leading waste feed in terms of trade and standardization, meaning it has become a popular feedstock choice for the biofuel producers.
Chart 1: Cross-hedging using Soybean Oil futures
The average daily volume of the Soybean Oil futures contract in the 12 months to September 2025 was over 180,000 lots per day, up around 9.5% from a year earlier. Open interest, a key measure of the trading interest in a market, is also at multi-year highs. There is also an active options market, where around 15% of the equivalent daily futures volumes are traded. The exchange has also seen a rise in the volumes traded from firms outside of the U.S. market. The latest exchange data shows that the total percentage of firms based in Europe trading Soybean Oil futures has reached around 25%, with Asian firms accounting for around 10%. The percentage of European firms has increased from around 20% in 2024 and similar gains for Asia.
Chart 2: Soybean Oil Futures and Options volumes in their ascendancy
Feedstock tightness by as early as 2028
The feedstock markets appear primed for a period of structural transformation as expanding mandates and stricter sustainability criteria drive a shift towards domestically produced and waste feedstocks. At the same time, some crop-based feedstocks are being phased out, placing further emphasis on rapeseed oil, used cooking oil and other waste feedstocks to meet the expanding needs from the aviation and maritime sectors. Renewable Diesel demand is also increasing from the Heavy Duty Vehicle (HDV) sector on the back of an ambitious biofuels blending program. It appears as if the feedstock markets could experience further periods of tightness, creating higher levels of price volatility which will need to be managed via the financial markets, analysts have suggested.
The chart below illustrates the availability of conventional and advanced waste oils (UCO, tallow, etc.) and compares it to the global demand from all of the relevant sectors. Based on the data, Argus Media expects used cooking oil availability to tighten as consumption in Asia’s domestic markets continues to grow. Without any new feedstock sources or a sizable uplift in UCO collections, tightness is expected by 2028-2030. Higher feedstock volumes are likely needed for sectors like aviation, where demand is set to rise, according to trading sources involved in the biofuels markets.
Chart 3: Looming feedstock shortage for biofuels
ReFuel EU Aviation and ReFuel EU Maritime - the new decarbonization push
ReFuel EU Aviation and ReFuel EU Maritime are the two latest EU Directives to support further decarbonization of both the aviation and maritime sectors. The demand from both sectors appears to be
gathering pace, albeit from a low base. Regulators have put higher blending mandates in place for these sectors, which should see much higher usage of biofuels going. Currently, the supply of products like sustainable aviation fuel is small at about 2% of the total jet fuel market, but this ramps up quickly to reach 70% by 2050. This combined with renewable diesel is expected to place significant pressure on the feedstock availability.
Argus Media estimates that Europe's renewable diesel and SAF capacity will reach 6.3-mil tons in 2025, with a further 0.7-mil tons under construction. SAF capacity in Europe is expected to reach 2.4-mil tons in 2025, up 17% from 2024. Renewable diesel capacity is set to reach around 4.5 mil-tons 2025, a 16% increase on the 2024 volumes. However, demand for both products is also set to increase, with Argus suggesting this could reach around 6.3 mil-tons in 2025.
This is all expected to tighten the feedstock markets, with Argus Media estimates showing that conventional and waste-oil feedstock availability in 2030 could reach around 43-mil tons, but this will be surpassed by the demand for renewable diesel, sustainable aviation fuel and biodiesel demand in the same year.
Sustainable aviation demand to add to interest in ethanol
Ethanol remains a key biofuel feedstock in the European markets. The blending mandates laid out by each member government have been increasing since 2009, through the introduction of the different iterations of the Renewable Energy Directive. The current blending rate of 10%, based on limits due to engine specifications, remains the benchmark for European gasoline across much of northwest Europe.
The principle production pathway for sustainable aviation fuel involves the hydroprocessing of esters and fatty acids (HEFA) which are blended with conventional jet fuel and fits well with the demand for waste oils and animal fats. This is a well-established production pathway that complements the newer technologies such as alcohol to jet or AtJ, which is likely to involve higher volumes of ethanol in the coming years as demand for more sustainable fuels for aviation increases.
The technology to convert ethanol to jet fuel remains relatively new. This is expected to become more common in the run up to 2030 and beyond, and there are currently 15 production facilities announced as of 2025.
Chart 4: Financial trading in Ethanol and Methanol remains robust
A more environmentally conscious approach to bioenergy supply is likely to place further pressures on the lower carbon and higher greenhouse gas feedstock supply chains. Higher volumes of waste feedstocks, greases and animal fats from regions like Southeast Asia, the Middle East and the U.S. are already introduced into the biofuels supply chain in greater quantities, replacing palm and soybean oil. This has seen competitive pressures placed on the domestic EU biofuels industry with alternative supplies being more readily available from outside the EU-27 member states.
The introduction of more advanced biofuels, through existing regulations, is likely to have a significant impact across the biofuels markets as blenders hunt for the feedstocks with the lowest carbon intensity to meet ever stringent mandates. Sustainable aviation fuels and alternative marine fuels are expected to be a big consumer of advanced feedstocks in the coming years as the blending mandates increase from the current levels.It remains to be seen what impact this will have on prices, but a period of volatility ahead looks ever more likely. The hedging and risk management for these markets using CME Group products is likely to become more important in the years ahead.
References
- Biodiesel is currently limited by the B7 blendwall meaning that the overall blend includes 7% biofuels.
- European Snapshot from the Argus Biofuels Analytics July 2025
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
