Hormuz Risk Returns With Five Vessels Hit, Damaged or Diverted as RINs Blow Out

D4 RINs pushed higher again today, with Dec26 at 2.585, up 1.16%, and Dec27 at 2.624, up 1.03%. The U.S. market is trading a physical shortfall, not a policy surprise. The 2026 biomass-based diesel requirement is 8.86bn RINs, or 9.07bn once small refinery exemption reallocation is included. May D4 generation was reported near 736mn RINs, against a monthly requirement closer to 915mn. The early-year deficit was already estimated near 1.41bn RINs, while plants ran near 77% of capacity in May against the 90% assumption used for the mandate.

D4 RINs

For non-specialists, a D4 RIN at 2.60 is not a small credit. Biodiesel generates 1.5 D4 RINs per gallon, so a 2.60 RIN equals $3.90/gal of compliance value. Using a biodiesel density near 0.88 kg/liter, that is roughly $1,170/mt. This is a huge subsidy signal. At that level, the U.S. should attract a wave of biodiesel and renewable diesel imports before Section 301 freight risk changes the trade. If that wave does not arrive soon, the issue is not price. It is execution, certification, logistics, policy uncertainty, or all four.

This is why imports need to move now. A cargo bought today still needs production, documentation, financing, freight, discharge, blending, and RIN generation before it appears in compliance data. A simple 30-day production cycle plus at least 20 days on the water puts September data at risk if buying waits until late summer. At $3.90/gal, or roughly $1,170/mt, the RIN value is large enough to pull molecules toward the U.S. The question is whether policy, certification, shipping, and counterparty risk allow the market to respond fast enough before Section 301 risk changes the freight calculation.

At 2.60, D4 RINs also become a refiner problem, and soon a political problem. Obligated parties will not sit quietly if compliance costs keep rising while domestic production lags the mandate. A $3.90/gal biodiesel credit value is large enough to attract imports, but it is also large enough to provoke lobbying, litigation, waiver pressure, and calls to revisit the RVO if the physical gallons do not arrive. That is the tension in today’s market. The credit is high enough to solve the arbitrage, but the regulatory environment is unstable enough to slow the investment and logistics needed to deliver it.

The uncomfortable part is that the remedy is part of the illness. The market needs more domestic production, more logistics, more feedstock flexibility, and more balance-sheet commitment. But producers and investors have had to underwrite RVO changes, SRE reallocation, 45Z uncertainty, foreign feedstock treatment, LCFS reform, double-counting rules in Europe, USTR freight risk, and litigation risk. That creates short-cycle behavior. Plants run when margins work, imports move when compliance credits pay, and investors wait. Higher RINs solve the arithmetic in the short term, but they also raise the risk of refiner backlash if physical supply does not arrive.

The U.S. screen already shows the stress. CBOT soybean oil rallied again, with Sep at 68.09 c/lb, Dec at 67.35 c/lb, and Dec soybean oil near $1,484/mt. BO as a share of gasoil is now 162.94% for Sep and 178.49% for Dec. Higher RINs are helping, but soybean oil is taking back part of the margin. The RD screen fell despite higher RINs, with Sep down 5.19% to 1.0087 and Dec down 5.43% to 0.8693. Conventional biodiesel held better, but still weakened, with Sep down 3.29% to 1.4306 and Dec down 3.24% to 1.2840.

Soybean oil strength is not coming from biofuels alone. China bought at least five U.S. soybean cargoes for Sep-Nov shipment, while U.S. soybean crop conditions slipped 1 point to 64% good/excellent, 2 points below last year. The state detail was mixed rather than catastrophic, with North Dakota down 10 points on the week, but Illinois up 3 points, Minnesota up 1 point, and South Dakota up 3 points. This keeps weather and China demand in the soybean oil story, even as the RFS remains the key reason U.S. soybean oil is decoupling from global vegoil.

Europe has the same feedstock problem, but its policy value is embedded in the physical biodiesel price. There is no European RIN screen. Latest European spot settlement values put RME at $1,486/mt, FAME at $1,449/mt, UCOME at $1,571/mt, TME at $1,551/mt, and HVO II at $2,640/mt. ICE gasoil settled at $972.75/mt and Argus gasoil at $948.75/mt. The NWE soft oil screen shows Dutch soybean oil at €1,140/mt for Jul-Oct and German soybean oil at €1,145/mt for Jul-Aug. At EUR/USD 1.1465, Dutch soybean oil converts to about $1,307/mt and German soybean oil to about $1,312/mt.

Those numbers keep European biodiesel margins tight, but the answer depends on the feedstock reference. Against Dutch soybean oil at about $1,307/mt, FAME at $1,449/mt gives a first-pass spread near $142/mt before methanol, energy, logistics, working capital, and glycerine value. Against German soybean oil at about $1,312/mt, the spread is near $137/mt before costs. RME remains tighter. Rapeseed oil at €1,234/mt converts to about $1,415/mt, leaving RME at $1,486/mt only $71/mt over feedstock before costs. Europe therefore still needs physical biodiesel premiums, mandate demand, and double-counting value where applicable to clear the margin.

UCOME remains the cleaner European biodiesel story, but it is not immune. UCOME at $1,571/mt is $122/mt over FAME and $85/mt over RME on the latest settlement values. That premium reflects some double-counting demand outside of Germany, but it also has to cover UCO collection, certification, freight, working capital, and quality risk. Large Chinese UCO exports remain bearish for global vegetable oil, but Europe still has to convert those flows into certified molecules at the right time and in the right port.

The global vegoil comparison still shows the U.S. decoupling. CPO is marked around $1,115-$1,141/mt across Jul-Dec, while CBOT soybean oil is close to $1,500/mt and European soybean oil is near $1,307-$1,312/mt on the NWE soft oil screen. BOPO widened again, with Aug BOPO up $15.21 to $385.30/mt and Sep BOPO up $15.43 to $371.61/mt. Brazil soybean oil FOB Paranagua also remains far below the U.S. board, with August shown around -1440 versus -1490, September around -1400 versus -1530, and OND around -1400 versus -1550. The RFS island is pulling U.S. soybean oil away from the global vegoil market.

Energy is no longer giving traders a clean bullish product signal. Crude led the move today because the Strait of Hormuz risk returned to the front of the screen. At 11:45, the 3:2:1 crack was still extreme at 58.99, but it eased from the high because crude rose while products slipped. RBOB was down 3.13 cents at 2.9720, ULSD was down 0.53 cents at 3.2931, and WTI was up $1.78 at $70.33. The ULSD crack remains close to $68/bbl, but today’s move was driven by conflict risk in crude rather than stronger product cracks.

The Strait of Hormuz traffic picture still looks fragile. The traffic chart shows only 16 commercial vessel crossings in the latest 24-hour rolling window, with 4 eastbound and 12 westbound. The vessel count now matters. Confirmed and reported incidents include an LNG tanker hit, a Saudi crude tanker damaged, an LPG tanker diverted, and further OSINT reports of additional vessel damage near Fujairah from July 5-6. That puts five vessels in the market’s risk frame, even if the fifth incident still needs official confirmation. Freight, insurance, and vessel availability price uncertainty before the official incident count is complete.

The crude market is trying to price oversupply and reopening, but the shipping market is still pricing risk. Saudi Arabia cut Arab Light to Asia by $11/bbl for August loading, down to a $1.50/bbl discount to Oman/Dubai, the biggest cut in the available Reuters record since 2003. Saudi exports were 4.53mn bpd in June, up from 3.74mn bpd in May, but still well below the 6.55mn bpd average before the war. Saudi Arabia is also considering adding 1-2mn bpd of bypass capacity to its East-West system, which already moves up to 7mn bpd to Yanbu. That is a long-term answer to a short-term shipping problem.

For biodiesel and RD traders, today’s message is direct. The U.S. has a RIN problem, an import timing problem, a refiner backlash risk, and an investment confidence problem. Europe has a gross margin problem because transformation costs are too high.. Crude rallied because Hormuz risk returned, while cracks slipped because crude moved faster than products. D4 RINs near 2.60 are telling the U.S. market 2026 needs imports, and the $3.90/gal, or roughly $1,170/mt, biodiesel credit value should pull a wave of product toward the U.S. before Section 301 freight risk changes the trade. European FAME against NWE soybean oil still leaves only about $137-$142/mt before costs, while RME against rapeseed oil leaves only about $71/mt before costs. Until imports arrive in size and feedstock values stop taking the margin, RINs remain the U.S. scoreboard and still could move higher while European gross margins remain the physical test.