RINs Signal Policy Stress as 45Z Reopens Risk and Feedstock Curves Continue to Soften

The release of IRS proposed 45Z guidance increased risk rather than reduced it, and the reaction in RINs is the clearest evidence. ICE D4 RINs strengthened following the announcement, with nearby values and Dec 2026 trading around 1.40 to 1.41. Traded volume remained limited, only a few hundred lots in Dec 26, but price action matters more than volume here. Instead of weakening as policymakers likely expected, RINs moved higher because the guidance raised compliance uncertainty rather than resolving it.

At these levels, D4 RINs are historically elevated and sit squarely in a zone that has produced political and regulatory response in the past. The last sustained period with D4 values near or above 1.40 was mid 2022, when RINs traded roughly between 1.45 and 1.70 during the peak of the energy crisis. That episode coincided with extreme diesel cracks and unresolved RVO policy, and it ultimately led to regulatory intervention. Before that, similar levels were briefly seen during the 2013 blend wall episode, which triggered immediate political backlash and rapid policy adjustment. Since 2014, sustained D4 prices above roughly 1.20 have rarely persisted without some form of relief mechanism, whether through RVO changes, expanded exemptions, or explicit signaling. This history matters because it frames current RIN strength not as equilibrium pricing, but as a stress signal.

Process reinforces that stress. Treasury issued the guidance as proposed rules and immediately opened a formal comment and hearing window. Written comments are due by April 6, 2026. Speaker outlines are also due by April 6. The public hearing is scheduled for May 28, 2026 at 10:00 a.m. Eastern time and will only be cancelled if no speakers register. Given the economic impact of the proposal, the rules are highly contentious and are expected to motivate active participation from refiners, producers, and trade groups. For traders, this defines a clear policy risk window extending from now through early April and into late May. Until that process concludes, the rules remain non final and subject to revision.

The substance of the proposal explains why RINs strengthened rather than weakened. Stackability is materially tightened. A facility generating a Section 45Q carbon capture credit in a given taxable year is disqualified from claiming 45Z in that same year, with eligibility resetting annually. The proposal also removes flexibility tied to hydrogen investment decisions. A Section 48 clean hydrogen investment credit election is defined as irrevocable and permanently disqualifying for 45Z. This forces long term strategic choices today and increases the probability that fewer gallons qualify for 45Z over time, shifting more compliance burden back onto the RFS system. Anti abuse language further raises enforcement risk, while feedstock eligibility narrows to material produced in the United States, Canada, or Mexico, alongside foreign entity restrictions beginning in mid 2025 and expanding again in mid 2027.

Energy markets added volatility but did not resolve the contradiction. ICE gasoil rallied sharply, with front month prices near 711 dollars per metric ton, up more than 3 percent on the day. Heating oil futures rose between 1.5 and 2.2 percent across the curve. The move followed renewed tension after Iran US talks stalled, reintroducing a geopolitical premium into middle distillates. Forward structure showed firmness without acceleration, pointing to risk premium rather than outright shortage.

Soy oil followed energy higher in outright terms but lagged on a relative basis. CBOT bean oil traded in the mid 55 cents per pound range, equivalent to roughly 1,220 to 1,240 dollars per metric ton for first half 2026. Three month performance remains near plus 10 percent. At the same time, bean oil expressed as a share of gasoil declined by roughly 1.5 percent on the day, showing feedstocks underperforming energy rather than leading it.

Updated US biodiesel crush margins highlight how fragile the economics already are. Using D4 RINs at 1.40, the screen shows Feb 26 margins near minus 6.9 cents per gallon, May 26 near minus 22.1 cents per gallon, and Jul 26 near minus 28.5 cents per gallon, with day over day deterioration of roughly 2.9 to 4.2 cents per gallon. These margins exclude any contribution from the 45Z credit. They reflect heating oil, soybean oil, methanol, and D4 RIN values only. Losses persist across the curve even with historically high RINs, which underscores how dependent forward economics have become on policy outcomes that are still uncertain.

South America reinforces the imbalance through basis. FOB Paranagua soybean oil bids softened again, with Apr May indicated near minus 630 dollars per metric ton versus futures, while Jun Jul weakened further to around minus 720. The deeper weakness further out on the curve signals confidence in rising Brazilian supply as crush ramps up and challenges aggressive forward soy oil pricing in paper markets.

A secondary but telling signal comes from India. For May delivery into West India, CFR soybean oil swaps are priced roughly 34 dollars per metric ton cheaper than CFR palm oil. Soybean oil discounting into the most price sensitive import market reinforces the theme of abundant global feedstocks rather than tight demand.

Europe provided physical confirmation through ARAG. The FAME0 window was active, with FAME0 flat price trading at 1,290 dollars per metric ton. UCOME traded at 1,402.50 dollars per metric ton, compressing the UCOME premium to less than 113 dollars per metric ton. RME flat price traded down to 1,366 dollars per metric ton. HVO Class II traded at 2,376 dollars per metric ton, implying a premium just under 975 dollars per metric ton to UCOME, while SAF was unchanged at 2,061 dollars per metric ton. Liquidity was present, but relative economics continued to compress rather than improve.

Taken together, markets are pricing policy stress rather than physical scarcity. D4 RINs at 1.40 to 1.41 sit at levels that have historically triggered pushback from independent refiners and regulatory response. The 45Z proposal tightens eligibility and removes flexibility while reopening the debate through a clearly defined and contentious hearing window into late May. At the same time, biodiesel margins remain deeply negative even before 45Z, South American export basis is weakening, Indian pricing signals ample supply, and European physical trade confirms compression across the biofuel value chain. This combination keeps downside risk in soy oil firmly in view once policy momentum fades.