EPA Moves the Clock, Winter Diesel Moves the Curve Higher

Either EPA has started reading GlobalBiodiesel, or the RIN market finally became loud enough for Washington to hear it. December 2026 D4 RIN futures fell 12.2% Friday to $2.085 after trading near $2.33 earlier in the session, following EPA’s decision to extend the September 1 deadline for 2025 RFS compliance and decide the remaining 2025 small-refinery exemptions by the end of August. There are 34 pending SRE petitions for the 2025 compliance year alone. The response was quick and effective in stopping the RIN rally, but EPA did not produce another gallon of biodiesel or renewable diesel. July D4 plus D5 generation was approximately 818 million RINs versus a required monthly pace near 916 million, leaving the January-July deficit around 1.6 billion RINs. The bigger question is becoming the credibility of the compliance calendar itself. The RVO remains legally intact, but when compliance dates repeatedly move as costs rise, the date becomes a weaker trading anchor. EPA has shown that it has a pressure-release valve for RINs: more time.

Diesel has no equivalent administrative release valve. September ICE gasoil reached $1,301.25/mt, but the more important development is what happened behind it. October closed around $1,260, November $1,208, December $1,155 and January $1,115, leaving Sep/Dec near +$146/mt and Sep/Jan around +$186/mt. The entire curve is moving higher rather than leaving the problem concentrated in the prompt contract. Europe’s approaching transition into winter-grade diesel helps explain the move. Fewer refineries are able to supply the required cold-weather grades, Middle Eastern product exports remain reduced, Asian replacement barrels face longer voyages and India’s ability to supply Europe is complicated by its Russian crude exposure. China adds another risk. Beijing has responded to US secondary sanctions against Chinese refiners buying Iranian crude by invoking its blocking rules, increasing the legal, banking and shipping uncertainty surrounding part of the Chinese refining system. The important distinction is that state refiners still dominate China’s formal CPP export quotas, but independent refiners remain important marginal processors and major consumers of Iranian crude. Iranian availability into China has fallen sharply, forcing refiners toward more expensive alternative crude just as the global market needs additional Chinese diesel and jet fuel. China had only begun restoring product exports, with July diesel shipments around 810,000 mt, up 88% from June. Any reduction in refinery runs or reluctance to move export barrels removes another potential relief valve for Asia and Europe.

ICE GASOIL

The US is now validating the European signal. The heating-oil crack is around $101/bbl, September heating oil sits near $4.47/gal and Sep/Dec backwardation is roughly 41 cents/gal. WTI rose 2.3% to $87.83 while Sep/Dec crude backwardation widened to $5.09/bbl. Retail prices are beginning to transmit the shortage directly to consumers. Arizona diesel has reached $5.76/gal, up roughly 15.5 cents in one week, 47 cents in a month and more than $2.15/gal from a year ago. At the recent pace, $6/gal comes into sight around the beginning of September. Arizona is useful because it does not carry the same low-carbon fuel costs layered onto diesel in states such as California and Washington, where retail diesel is already well above $6/gal but where we should be expecting high blends of RD because of higher incentives. We should therefore start looking closely for demand destruction as Arizona goes over $6. Until now, consumption has been surprisingly resistant to extraordinarily high wholesale prices. If meaningful demand destruction still fails to emerge, the market will have to move higher to ration scarce barrels. My working expectation is now for ICE gasoil to challenge $1,400-$1,450 first, with a test of the previous high around $1,550/mt increasingly credible during the early days of September if these regional distillate shortages continue to converge.

For biodiesel and renewable diesel, Friday’s combination remains unusually constructive despite the fall in RINs. September soybean oil dropped 2.6% to 69.35 cents/lb, approximately $1,529/mt, while September gasoil held above $1,301/mt, pushing September BOGO down another 15.5% to roughly +$228/mt. December BOGO is around +$379 and January +$419. At $2.085/RIN and using a 1.6 coefficient, the D4 component alone represents $3.34/gal of renewable diesel. Using a density of 0.79 kg/l, one metric ton represents approximately 334 gallons, giving the RIN component a value close to $1,116/mt. Even after Friday’s collapse, the regulatory value embedded in a metric ton of RD is therefore equivalent to roughly 86% of the value of September ICE gasoil itself. Our modeled RD crush improved about 12% to approximately $1.32/gal, around $441/mt using the same density, while conventional biodiesel improved 7.4% to roughly $1.80/gal, around $603/mt, before 45Z and LCFS. EPA weakened the compliance credit, but cheaper soybean oil relative to increasingly expensive diesel moved the physical transformation economics sharply in the opposite direction.

Europe’s biofuel market is also refusing to confirm the bearish signal from US RINs. Friday paper trading included 21 kt of FAME, 10 kt of RME, 6 kt of UCOME and 33.5 kt of HVO Class II. September FAME traded around $280/mt over gasoil, up $35 from Thursday, September UCOME reached $408 over, up $18, and September RME traded around $369 over, up $9. HVO Class II October traded near a $1,790/mt differential, while another 24 kt traded in the Sep/Oct spread. Palm remains firm, with Q4 CPO around $1,272/mt and August 1-20 Malaysian production estimated between -3% and +1%, while Brazilian soybean oil basis remains weak at roughly -1,550/-1,650 points for September and -1,650/-1,700 for October. The feedstock picture is therefore mixed, while the diesel signal is becoming increasingly consistent across Europe, the US and Asia. My prognostic remains unchanged but is gaining confirmation. We are moving from a European distillate squeeze toward a global one just as Europe enters the winter-specification transition. Washington found a mechanism to move the RFS compliance clock. Nobody has found a mechanism to move the European winter clock. RINs fell 12% Friday. It will take a significant supply solution to change pricing dynamic of Gasoil ahead of winter.