Cheaper Harvest Fuel Trades Weaker RVOs Under RFS

There is an irony in offering farmers cheaper harvest fuel through an exemption that could weaken demand for their crops. Removing dyed diesel from the US Renewable Fuel Standard could reduce eligible fuel costs while cutting compliance demand supporting biodiesel, renewable diesel and their feedstocks. The proposal follows other relief for refiners: EPA extended the 2025 compliance deadline by 30 days to October 1 and granted small-refinery exemptions covering 1.76 billion RINs, 770 million more than anticipated. The agency intends to propose reallocating that difference into 2026–27 before the end of October, but replacement obligations are not yet settled. Producers face another potential exemption before the consequences of the previous decisions have been resolved. The suggested API lobbyist saving of roughly 30 cents per dyed-diesel gallon covers the full RFS compliance cost. At Monday’s December D4 price of $2.063 and the 2026 biomass-based diesel standard of 5.24%, the D4 component alone represents approximately 10.8 cents per fossil gallon. Other compliance costs contribute to the total, while the benefit reaching farmers would depend on the final rules and supplier pass-through.

An exemption covering 2 billion gallons of currently obligated dyed diesel, approximately 6.36 million metric tonnes, would remove 104.8 million D4 RINs from the specific biomass-based diesel requirement. At an average of 1.6 RINs per biofuel gallon, that represents 65.5 million physical gallons, approximately 218,000 metric tonnes on a biodiesel-equivalent basis. An export ban could increase obligations instead. Retaining 2 million barrels/day for 90 days would keep 7.56 billion gallons, approximately 24.04 million metric tonnes, in the US. If all became additional obligated domestic supply, that would add approximately 396 million D4 RINs, equivalent to 248 million biofuel gallons, or 826,000 metric tonnes on the same basis. These scenarios depend on the relief period, refinery production, displaced imports and any reallocation; the weight conversions assume 0.84 kg/litre for fossil diesel and 0.88 kg/litre for biodiesel equivalents. The larger commercial risk is that compliance volumes and margins move in different directions. A simultaneous 10-cent decline in diesel and D4 would remove approximately 25 cents/gal of combined fuel and credit value for conventional biodiesel, or 27 cents for renewable diesel generating 1.7 RINs/gal.

The inventory position supports a firm diesel outlook entering October. Combined US commercial and strategic crude stocks stood at 708 million barrels on September 11, the lowest since March 1984. The Strategic Petroleum Reserve subsequently fell to 283.8 million barrels on September 25, from 284.6 million a week earlier. Refined-product buffers are also thin: the latest weekly market indications put ARA gasoil stocks approximately 25% below a year earlier and Singapore middle-distillate stocks 14% lower. Monday’s October ULSD quote rose 10.28 cents to $4.7875/gal and retained a 46.44-cent/gal premium to January. October–January European gasoil backwardation stood at $162.75/mt. I expect renewed fighting in West Asia over the next two weeks to keep international diesel strong. Low inventories leave buyers less room to absorb further delays, while an American export restriction would shift the shortage toward importing markets. Strong diesel remains supportive of renewable-fuel revenues, but that support could become increasingly uneven between the US and its overseas customers.

Northwest Europe is particularly exposed. The US share of Europe’s extra-regional seaborne diesel imports is estimated at 42% for 2026 to date, up from 29% in 2025. Replacing that supply would be difficult while the Rhine also constrains inland deliveries. Yet Monday’s forward biodiesel premiums weakened: November RME fell $30 to +$315/mt over gasoil, November FAME declined $30 to +$175, and October UCOME lost $45 to +$380. November HVO II eased $20 to +$1,580. Physical RME barges traded at premiums of +$430 and $465/mt, averaging +$447.50, with the reported outright value rising $5.30 to $1,857.30/mt. Physical UCOME traded at +$435, while its outright value fell $35.95 to $1,844.80/mt. These physical and forward prices cover different delivery periods and pricing bases, but the session shows that expensive diesel does not guarantee stronger renewable-fuel premiums. If fighting intensifies and American cargoes are restricted, I expect pressure on European governments to release additional strategic refined-product stocks. Releases could ease the immediate squeeze; rebuilding inventories would require a sustained improvement in supply.

Asia has seen some easing in diesel prices without a comfortable stock position. The latest weekly indications put Singapore gasoil cracks at $74.57/bbl, nearly $20 below the preceding week’s peaks. On Monday, January Dalian palm olein fell 1.57% to 9,523 yuan/mt and January rapeseed oil declined 0.81% to 10,052 yuan/mt. December Chicago soybean oil at 67.66 cents/lb was equivalent to approximately $1,492/mt, a $158/mt premium over December gasoil before processing, freight and compliance value. Asian suppliers could face weaker US feedstock bids if American biofuel margins deteriorate, alongside stronger European demand for replacement fuel. My October forecast is that a US diesel ban, if imposed, would bring pressure to extend restrictions to other refined products and possibly crude as Washington tries to protect domestic fuel prices and refinery margins. A 10-cent/gal decline in diesel removes $4.20/bbl of product value; crude would need to fall by the same amount to preserve that simple diesel-versus-crude spread. Broader product restrictions could also depress refinery revenues, making the outcome uncertain. I remain constructive on international diesel, but more cautious about US renewable-fuel margins. Farmers need affordable fuel to harvest their crops; weakening the buying power of the biofuel industry could make that relief more costly than it first appears.