Diesel Futures Rebound As RIN Prices Surge Despite Rising Supply

Diesel futures are back leading the energy complex higher Friday morning, erasing more than half of Thursday’s big selloff. The 200 day moving average for ULSD which is holding just below the $2.27 mark looks to be a pivotal resistance point near term that may well determine if diesel prices can continue their 2 week long rally that’s added more than 20 cents to values, or if we’ll see another test of the lows set on January 7. Basis values in all of the major US spot markets are holding in negative territory, suggesting that the relatively tight supply situation in PADD 1 that’s helping aid futures isn’t causing much concern of shortages elsewhere.

While the US seems to have put a military strike in Iran on hold for now, the US Treasury announced a new round of sanctions targeting the “architects” of the deadly crackdown on protesters, which is a reminder that this issue may be simmering, but it’s not going away.

While refined products were coming under heavy pressure Thursday RINs surged to their highest levels in nearly 2.5 years Thursday with D4 (BIO/RD) RINs trading just below the $1.30 mark while D6 (ethanol) RINs traded at $1.21. The latest surge came despite data from the EPA that RIN generation for D4 and D6 credits reached its highest levels of the year in December. RD and SAF production both increased in December, helping to offset another drop in Biodiesel production and increase total D4 output by more than 10% month on month. Ethanol RIN generation increased by 15% in December, reaching its highest level since August 2024.

The price rally in RINs (despite the increase in supply) followed another Reuters rumor report about the EPA releasing its final rules for the RFS in 2026 and 2027 even though that note suggests the agency is considering lowering its Bio-based diesel requirements (lowering the mandated demand) and scrapping the 50% haircut for imports to ease supply concerns, both of which would appear to be bearish for RIN values.

So, why are values rallying when the EPA said supply is increasing, and a rumor said the targets might be lowered from the original proposal? If you annualize the December D4 RIN output (which was the highest all year) you get 4.879 billion RINs, compared to a 2026 target that’s estimated between 5.2 and 5.6 billion, and with margins still questionable for many domestic producers and negative for importers, it appears that that credit prices have to rally in order to create enough value to fill the gap. Also keep in mind that the new RFS proposal lowers RD generation to 1.6 RINs/gallon from 1.7 previously.

PBF’s 160mb/day Torrance refinery has reported 2 unplanned flaring events in the past 24 hours. That plant is undergoing 2 weeks of planned maintenance, and the filings with the AQMD don’t specify which units were impacted, so it’s possible that output won’t be impacted and so far the LA spot market hasn’t reacted at all to the news.

Flint Hills reported an upset in a wastewater collection system at its 270mb/day Corpus Christi West refinery earlier this week. A leak from a hole in a pipe was cited as the cause of the upset, with investigations ongoing but so far no reports of operating units being shut down have been made.

Freeport reported an upset at its LNG pretreatment facility that is one of the country’s largest outlets to export natural gas. All 3 of the facilities trains were taken offline due to a power feed interruption but were restarted within 1 day. A fire at that facility in June of 2022 seriously disrupted export capacity for nearly a year, and had a large influence on prices as the world was struggling to replace Russian supplies, and highlighted the dependence US gas producers have on the export facility bottleneck.