D4 at $2.38: How High Before Washington Blinks?

The most important biofuel signal today was D4 RINs. December 2026 D4s jumped 4.38% to $2.38/RIN, and EPA’s newly released July numbers help show why. Domestic D4 generation fell to 798.05 million RINs from 839.22 million in June, down 4.9%. Renewable diesel accounted for most of the deterioration, with generation falling 7.2% to 532.21 million RINs. Biodiesel slipped 1.9% to 218.26 million. SAF was the exception, rising 10.7% to a record 47.58 million D4 RINs from 29.74 million physical gallons. Including 24.87 million D5 RINs, July gross D4/D5 generation reached only 822.92 million RINs, down 5.1% from June’s 866.95 million. The estimated net generation pace required to balance 2026 sits near 916 million RINs per month. June suggested industry was getting closer. July moved backwards. EPA established a 9.07 billion RIN biomass-based diesel obligation after SRE reallocation and built its assumptions around roughly 90% utilization of existing biodiesel and RD capacity. Industry has never sustained the production pace embedded in those assumptions. I do not have evidence proving EPA intended industry to miss the higher RVO, but seven months of actual generation increasingly show how aggressive the assumptions were.

The price required to force more production is now becoming politically dangerous. At $2.38/RIN and a 1.6 equivalence value, the D4 alone contributes $3.81/gal to renewable diesel economics. Using a renewable diesel density of 0.79 kg/litre, that equates to approximately $1,273/mt of RFS compliance value. For international traders, the scale is striking. The D4 value alone is almost equal to ICE gasoil at roughly $1,300/mt and represents more than 80% of soybean oil’s current value near $1,540/mt. This is regulatory support approaching the value of the underlying fossil fuel itself. D4 already traded above $2.55 in July, so a retest looks increasingly reasonable when July generation again fell below the required pace. At a $3 D4, the RIN contribution rises to $4.80/gal, or roughly $1,605/mt, exceeding today’s outright value of gasoil and approaching the value of the feedstock itself. What makes this even more difficult politically is the petroleum side. The US heating-oil crack recently exceeded $100/bbl and reached a record near $102/bbl, meaning diesel economics are already providing an exceptional incentive for renewable blending. Yet D4 still needs $2.38 and generation remains deficient. If diesel cracks eventually normalize without a substantial improvement in D4 generation, the RIN will need to carry even more of the economics. A move toward $3 therefore starts looking less like an extreme price forecast and more like the compliance market searching for the price required to make the RVO work. At that point, Washington would be confronting an implicit regulatory value of more than $1,600/mt attached to renewable diesel, and the RIN market risks reaching a political limit before it reaches its economic clearing price.

Renewable diesel flows add another puzzle. We are not seeing foreign RD imports arrive in anything close to the size one might expect with D4 at $2.38 and diesel margins at records. Instead, the Jones Act waiver is changing where US-produced renewable diesel moves. Before the waiver, RD represented 96% of waterborne Gulf Coast to West Coast petroleum movements in most months. Once the waiver opened the route to a broader vessel pool, total petroleum shipments from the Gulf Coast to the West Coast surged to 190,000 b/d in April from less than 30,000 b/d in January and February. Domestic RD now has a much easier route from Gulf Coast production centers into PADD 5. This solves part of a distribution problem, but it generates no additional RINs. The D4 was generated when the gallon was produced. Moving the same gallon from Texas or Louisiana to California merely places it into the highest-value market. EPA itself built the 2026 RVO around domestic BBD production rather than large finished-product imports, while acknowledging dependence on imported feedstocks and logistical constraints. The system is therefore becoming more efficient at moving existing RD while still failing to produce enough new renewable gallons. With D4 at $2.38, a record diesel crack and better domestic marine logistics, July RD RIN generation still fell 7.2%. Traders should pay close attention to this failure of supply response.

Energy markets added another layer today after Washington threatened sweeping secondary sanctions against countries continuing economic relations with Iran. Details are expected Monday, leaving traders to price enforcement risk before seeing the final structure. China is the critical buyer because it absorbs the majority of Iranian crude exports. Brent moved above $93/bbl and WTI approached $88, while ICE gasoil remained near $1,300/mt. Yet September/December gasoil backwardation narrowed to roughly $148/mt from $160. The curve is therefore extending the duration of the disruption rather than suddenly discovering prompt scarcity. My diesel view remains unchanged. Serious distillate tightness is already developing, and pressure on Iranian exports increases the risk of prolonging it. For biofuel traders this matters in two directions. Higher petroleum values improve the economics of renewable blending, while higher crude and distillate risk also support vegetable oils through energy substitution. The fact D4 generation remains inadequate under such favorable petroleum economics is therefore more significant than the outright crude rally itself.

Europe and feedstocks offered little relief with serious inland River transport issues. The physical biodiesel window was unusually quiet, with the best participation concentrated in HVO Class II. Paper trading showed 19kt of HVO II and 31kt of RME, while several forward bio premiums softened despite expensive outright diesel. Rhine logistics remain severely impaired after Kaub reached a record 6 cm, with ARA-Basel barge freight recently reaching €276.67/mt versus roughly €35/mt in early June. Malaysian CPO also broke above MYR4,800 despite August 1-20 exports falling month on month, while Q4 POGO jumped almost 10% to around +$98/mt. September BOGO widened 10.6% to roughly +$270/mt as soybean oil outperformed gasoil, a clear setback to my call for lower BOGO this week, although the three-month move remains almost 49% lower. For biodiesel and RD traders, D4 now deserves priority over almost every other screen. July generation fell despite record SAF output. Record diesel margins have failed to produce enough additional renewable volume. Foreign RD imports remain limited. Domestic RD is being redistributed more efficiently under the Jones Act waiver without increasing national RIN supply. The next important test is $2.50 D4. A sustained move toward $3 would mean the market is no longer testing renewable fuel production economics. It would be testing how long Washington is prepared to tolerate the price required to make its own RVO work.