Biofuels Q3 2026 Update
The third quarter of 2026 confirmed that biofuels are a fundamentally policy-driven market, with regulation continuing to do more to shape demand that the underlying fuel economics. In Europe, the phase-out of double-counting for advanced biofuels moved closer to reality following the German and Dutch policy amendments approved earlier in the year, pushing compliance value toward genuinely waste-based volumes rather than multiplier-driven paper credits. In the US, the effects of ‘Set 2’ Renewable Fuel Standard volumes continued to work through the market, while the sector still awaited final guidance on 45Z clean fuel production credit rules. Together, these frameworks kept demand for low-GHG pathways structurally supported, even as physical trading conditions eased from the tightness seen earlier in the year.
Sustainable Aviation Fuel - SAF -remained the fastest-growing segment, but the quarter reinforced a familiar gap between mandate ambition and physical supply. Europe’s ReFuel EU Aviation blending requirement kept demand on a firm upward trajectory, with global SAF output tracking toward roughly 2.4 million tonnes for the year - only a modest growth from 2025, despite the mandate step-up, underscoring that production capacity, not policy intent, remains the binding constraint. Feedstock concentration continued to be the central risk to that supply picture, with HEFA-based pathways still reliant on the same used cooking oil and animal fat pools as renewable diesel, SAF, RD and conventional biodiesel producers spent the quarter competing more directly for the same limited tonnage, a dynamic reinforced by HVO producers’ continued shift toward alternative Annex IX B feedstocks to diversify away from constrained UCO supply.
Renewable diesel and conventional biodiesel diverged more visibly than in previous quarters. After a sharp HVO price spike in Q2, producers and blenders spent Q3 working through elevated inventories built-up in anticipation for stronger 2026 mandates, with many blenders opting to draw on UCOME and Annex IX A FAME stocks to capture their steep discount to HVO rather than buying HVO outright. That inventory overhang, combined with an easing of the Middle-East driven gas-oil premium that lifted prices in April, took some heat out of the renewable diesel market even as longer-term demand signals - particularly from Germany, France and the Netherlands - stayed constructive. As a result, the market moved sideways on a grade-by-grade basis rather than the broad based rally of Q2, with FAME-0 losing ground even s UCOME and RME held their value.
Heading into Q4, the sector’s key swing factors look set to remain the same as those shaping Q3: whether European mandate amendments are transposed into national law on schedule, how quickly US 45Z guidance clarifies compliance economics and wether feedstock supply - still structurally short relative to 2030 SAF targets - can keep pace with converging demand from aviation, road transport and marine fuel buyers. Planned refinery maintenance at several major HVO facilities in Q4 adds a further supply-side variable, with the market broadly expecting scarcity driven price support to reassert itself once turnarounds reduce output in an already tight system.
