European HVO Class IV-II Spread Hits Record $450 Per Tonne The northwest European HVO Class IV–II spread reached a record high of around $450 per tonne on Tuesday, 21 April 2026, according to Argus Media. This marks a significant increase from $250 per tonne a month prior, driven by tightening supply and evolving regulatory expectations in key European markets. Hydrotreated vegetable oil (HVO) is categorized by feedstock origin under the EU Renewable Energy Directive (RED). Class II HVO is produced from used cooking oil (UCO), an Annex IX B feedstock, while Class IV HVO is derived from palm oil mill effluent (POME), an Annex IX A feedstock. Under current RED rules, biofuels from Annex IX feedstocks are double-counted toward transport renewable energy targets in many member states. However, Class II faces a cap on its contribution to mandate compliance, whereas Class IV is incentivized alongside other Annex IX A biofuels. The recent spread widening reflects divergent market dynamics. On 21 April, the Class IV premium to gasoil rose by $95 per cubic metre on the Argus Open Markets (AOM), while Class II increased by only $20 per cubic metre. Market participants attribute the Class IV strength to scarce offers in the Amsterdam-Rotterdam-Antwerp (ARA) hub, linked to supply-side behaviour and expectations of regulatory change. Legislative developments in the Netherlands and Germany have strengthened expectations that double-counting of Annex IX feedstocks will be abolished from 2026. If implemented, this would require obligated parties to use twice the physical volume of biofuel to meet the same greenhouse gas (GHG) reduction quotas. Demand for drop-in fuels like HVO—particularly Class IV—is expected to rise significantly. Indonesia’s restriction on crude POME exports since January 2025 has further constrained supply, while limited European POME processing infrastructure amplifies systemic risks. The launch of ICE Argus-settled Class IV futures contracts on 7 April 2026 has enabled independent price discovery, reducing reliance on Class II instruments for hedging and allowing the spread to reflect true market fundamentals. Regional implementation timelines are creating demand imbalances. The Netherlands has initiated a phase-out for 2026 execution, while Germany remains in legislative review for 2026–2027. France’s timeline remains undetermined. These shifts represent fundamental changes to market architecture, not temporary disruptions. With progressive mandate increases under RED III expected to sustain demand for advanced biofuels through 2035, the structural tightening in the HVO Class IV–II spread underscores how policy shifts are reshaping European biofuel trade flows and pricing mechanisms.
53