RINs Sink as White House Considers 50% Cut in SRE Reallocation

The main news today is the Reuters report that the White House and EPA are considering a proposed 50% reduction in the reallocation of Small Refinery Exemptions (SREs) - we had warned here that it was bound to happen. Historically, SREs have removed billions of gallons from compliance. A 50% haircut would still leave a large gap: estimates point to as much as 2 billion gallons of blending requirements disappearing in 2026, equivalent to roughly 6.4 million metric tons when adjusted for HVO density. Such a shift would fundamentally reshape RIN demand and compliance dynamics, but it is inevitable that this matter will have to be settled by courts considering the large size of SRE exemptions and the RVO impact on remaining refiners.

Refiners with a history of benefiting from exemptions will not take this quietly. The proposal is likely to trigger fierce debate between large refiners, the White House, and the EPA. In past cycles, exemptions have been challenged repeatedly in courts, and the same pattern can be expected again. With such high stakes, the legal and political fight could drag on for months, creating significant uncertainty for obligated parties.

The immediate effect is clear in the RINs market. ICE futures show D4s already slipping under the $1.00 mark, with Dec25 last at $0.995 and Dec26 dropping further to $0.954. The screen biodiesel crush for Dec26 has now deteriorated to –58.8 cts/gal using a 0.95 RIN factor, highlighting how falling RINs and weak forward values are crushing production margins. Traders are increasingly pricing in the risk that fewer gallons will need to be covered in the forward curve, dragging the whole compliance complex lower.

In Europe, refining costs remain under pressure. Petroplus, once the largest independent refiner on the continent, confirmed the closure of three of its five refineries — an early signal of how fragile European refining economics have become. Global refining margins highlight the divergence: the world screen heat crack still shows nearly $34/bbl and the US 3:2:1 crack sits around $25/bbl. But these figures flatter Europe — Brent is $4/bbl higher than WTI, inflating the cracks, while ICE gasoil is nearly $20/mt cheaper than US heating oil. Together, these adjustments mean effective margins for European refiners are far lower than the global screens suggest. Combined with high labor, power, and carbon costs, this makes local refining uncompetitive against Indian and Middle Eastern diesel imports flooding into ARA.

Vegetable oils reinforced the bearish mood today. The Malaysian Palm Oil Board’s August report showed production up 2.4% on the month with stocks climbing 4.2% to 2.20 million mt, while in Europe, soyoil dropped sharply to $1,060/mt FOB Nov–Dec, rapeseed oil slipped to €1,045/mt, and sunflower oil fell to $1,280/mt. Biodiesel trades today reflected this backdrop: RME at $1,420.60/mt, FAME at $1,366.97/mt, and UCOME at $1,473.70/mt. Gross margins versus feedstock are still positive — RME at +$168/mt, FAME at +$307/mt, and UCOME at +$194/mt. But BOGO was weaker again today, and unless a geopolitical shock injects a spike into gasoil, the weight of lower feedstock spreads will eventually drag biodiesel premiums down from current elevated levels.