by Ana Hernandez and Carlos Castillo (S&P Global) US refiners maximize diesel production output; BO-HO spread plunges to seven-year low level; D4 RIN credits fall 16% amid price pressure
Global supply disruptions have propelled US diesel prices higher, prompting refiners to increase output while reshaping the economics of biodiesel, renewable diesel and D4 RIN credits.
Since the US-Iran conflict began in late February, reduced global oil supplies have driven the benchmark US Gulf Coast ultra-low sulfur diesel price up by more than $2.10/gal, or 77%.
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The latest price surge followed Russia's decision to extend restrictions on diesel exports through the end of October after Ukrainian strikes disrupted the country's refineries. The measures intend to stabilize Russia's domestic fuel market by restricting diesel, marine fuel and gasoil.
Those disruptions have increased demand for US barrels and created profitable export arbitrage opportunities. At the same time, low domestic inventories have added upward pressure to prices.
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US refiners have responded by maximizing diesel output.
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Much of that additional supply is being pulled into the export market.
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The surge in petroleum diesel prices has also reshaped the economics of producing and blending biodiesel and renewable diesel. That shift is reflected in the BO-HO spread between CBOT soybean oil and NYMEX ULSD, which has fallen to its lowest level in seven years.
The BO-HO is used by the biodiesel industry to gauge production costs and margins. A lower BO-HO spread encourages biodiesel producers to maximize production. Conversely, as the BO-HO increases, the cost to produce biodiesel rises, leading to a decline in overall blending economics and unfavorable margins.
The BO-HO spread has plunged by more than 72 cents/gal, or 110%, since the start of September. Platts assessed the spread at minus 6.83 cents/gal on Sept. 18, its lowest level since May 2019.
The decline primarily reflected the sharp increase in diesel values. Over the same period, US Gulf Coast ULSD rose by more than 21 cents/gal, or 4.56%, after reaching an all-time high of $5.18/gal on Sept. 15.
The industry entered September with biomass-based diesel production already elevated. The latest EIA data showed biodiesel production had increased 42% since the start of the year to 129 million gallons in May. Renewable diesel production rose by more than 62% over the same period to 318 million gallons.
Both fuels generate D4 Renewable Identification Number credits under the Environmental Protection Agency's Renewable Fuel Standard. Obligated parties, including gasoline and diesel producers and importers, use RINs to demonstrate compliance with renewable fuel blending requirements.
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As the lower BO-HO spread strengthened incentives to produce biomass-based diesel and generate associated credits, D4 RIN prices came under pressure. D4 RINs fell 36.75 cents, or 16%, between Sept. 1 and Sept. 18, when Platts assessed them at $1.9275/RIN, down 13 cents from the previous day.
EPA data released on Sept. 17 showed a drop in August RIN generation, with D4 RIN output falling to a five-month low. Despite this, D4 RIN prices did not move higher, as market participants attributed the lack of upside to the low BO-HO spread, which continues to incentivize current RIN production, keeping prices low. READ MORE
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Excerpt from Barchart This dramatic surge has prompted prominent Republican lawmakers, including Senate Majority Leader John Thune and Iowa Senator Chuck Grassley, to publicly advocate for export restrictions, while Tennessee Representative Tim Burchett has introduced legislation that would prohibit diesel exports through January 2027.
The political calculus behind the export ban push is straightforward: diesel is the industrial backbone fuel that powers trucking, farming, construction, and freight, meaning its price ripples into virtually every consumer good. Farmers, a traditionally reliable Republican voting bloc, are experiencing acute financial strain, with Grassley warning that high diesel costs are destroying farm incomes at a time when the agricultural sector is already frustrated with tariffs and increased beef imports.
The timing, just seven weeks before the midterm elections, has made energy costs a potent liability for the governing party, particularly in competitive races in agricultural states like Iowa.
Foreign Wars Are Coming Home to Roost
The supply crisis underlying this debate is rooted in two overlapping geopolitical disruptions. The US-Iran conflict has severely restricted tanker traffic through the Strait of Hormuz, while Ukrainian drone strikes on Russian refining infrastructure have compounded global diesel losses, prompting Moscow to extend its own diesel export ban through October.
Middle Eastern diesel exports have been cut roughly in half compared to a year earlier, and the International Energy Agency (IEA) has indicated that lost Middle Eastern diesel output is approximately three times larger than lost Russian supply.
Despite the political appeal of an export ban, senior administration officials and industry groups have voiced strong opposition. Energy Secretary Chris Wright and Interior Secretary Doug Burgum have argued that restricting exports would likely backfire, as trading partners could retaliate with their own restrictions, ultimately shrinking global supply and driving prices even higher.
The American Fuel and Petrochemical Manufacturers trade group has warned that if refiners cannot move surplus product overseas, some would scale back production, reducing overall domestic supply. While an export ban might bring temporary relief in Gulf and Midwestern states for a few weeks, refineries would subsequently cut output, causing a secondary price spike. READ MORE
Excerpt from Detroit Free Press: "The war in Iran needs to end to bring costs down – but Michigan families can’t afford to wait," (U.S. senate candidate Mike) Rogers said on social media on Monday adding his proposal for a temporary embargo on diesel exports, would "provide relief to American families first."
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Rogers also has proposed suspending the state and federal gas tax of 70 cents a gallon, which the former congressman said would benefit farmers and truckers who are spending more on fuel and passing the costs on to Michiganders.
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The Senate candidate joined other Republicans, including Sen. Chuck Grassley of Iowa, who said high diesel prices are "killing farmers' income" and urged the president to put the embargo in place. Rep. Ashley Hinson, also of Iowa and also running for the Senate, wants to suspend diesel exports.
And Senate Majority Leader John Thune of South Dakota said last week he was open to exploring a ban.
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Politico reported on Monday that Energy Secretary Chris Wright has said restricting diesel exports would lead to “more expensive gasoline right away,” and the outlet quoted an unnamed White House official who said the administration is “not considering” such a ban or restrictions – "at this time." READ MORE
Excerpt from Washington Sun: President Donald Trump backed a ban on U.S. diesel exports Tuesday as pressure from Republicans grows for an embargo on the shipments to curb soaring fuel prices.
The president said he has called for the export prohibition “within my people.”
“I’ve said let’s not send out the diesel. We make a lot of diesel,” Trump said during a bilateral meeting with Ukrainian President Volodymyr Zelenskyy. “That could have a little bit of an effect on regular automobile gasoline, because when you do that, it’s a sort of a flow, it’s a balance.”
Treasury Secretary Scott Bessent told reporters the administration is examining “whether it’s feasible in terms of the overall refining capacity and whether a full or partial ban would work.”
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Some experts argue that a ban could lead to short-term relief while creating long-term issues for the U.S. energy sector by hurting domestic refineries that produce both diesel and gasoline. READ MORE
Excerpt from CATO Institute: Would an export ban be legal under international trade law? Generally, quantitative trade restrictions on imports and exports are illegal under Article XI of the General Agreement on Tariffs and Trade, which is part of the WTO treaty. But an exception in Article XI:2(b) of the GATT permits export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” This exception would seem to apply to this situation.
But even if such a ban were legal under international trade law, would it be a good idea economically? The easy political answer out on the campaign trail is “Yes.”
However, as CNN reports, “researchers warn that an export ban would likely only provide a temporary reprieve from sky-high diesel prices and would backfire in the medium and long run. They said a ban would likely raise prices on friends and allies, jack up gasoline prices, crush US refiners, and damage America’s reputation as a reliable energy superpower.” READ MORE
Excerpt from Brownfield Ag News: Ag Economist Scott Irwin at the University of Illinois says expanding E15 consumption in the United States could indirectly help ease some of the pressure on diesel prices.
“To close the gap between the Renewable Fuel Standard mandate for ethanol and what we call the E10 blend wall,” he says. “Currently, that’s a gap of around 1 billion to 1.5 billion gallons of ethanol.”
Irwin says increasing ethanol use would reduce some of the pressure the RFS puts on biodiesel and renewable diesel. He says it would also drive down ethanol Renewable Indentification Number (RIN) prices and reduce the overall cost of the RFS by about two-thirds.
“It’s not a huge issue. You only have to increase the blending rate for ethanol from around 10.5 percent to 11 or 11.2 percent, and any cost worries about the RFS basically disappear.”
He says historically, it’s not an approach the energy industry has favored.
The Senate Agriculture Committee’s farm bill includes a provision allowing E15 to be sold year-round nationwide. The bill is awaiting consideration by the full Senate. READ MORE; includes VIDEO
Excerpt from S&P Global: "The US is not short of diesel. The world is. The US is a structural diesel surplus producer. Refineries in the US produce roughly 5.3 million barrels of distillates per day against demand of around 3.6 million barrels per day domestically," said Patrick De Haan, head petroleum economist at GasBuddy, on Sept. 22.
Because US refineries operate as part of a globally integrated fuels system, removing diesel exports would trigger a chain reaction across refinery operations, product markets, renewable fuels and international trade flows, S&P Global analysts noted.
A proposed ban on US diesel exports could strand up to 1.5 million barrels per day of fuel in the domestic market, triggering refinery run cuts on a scale not seen since the early months of the COVID-19 pandemic and sending global diesel prices sharply higher, they said.
The warning comes as diesel crack spreads hover at record or near-record levels, driven by refinery outages in the Middle East and Russia, lower Chinese exports and seasonally tight inventories — conditions that have already boosted profits for Gulf Coast refiners while raising fuel costs for truckers, farmers and industrial users.
The unplanned outage at ExxonMobil's Joliet refinery has amplified those pressures in Midwest markets just as the harvest season gets underway, illustrating how little buffer remains in a system running at near-100% utilization. READ MORE
Excerpt from Brownfield Ag News: Ag economist Gregg Ibendahl with Kansas State University says the fuel market needs to work itself out.
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Ibendahl tells Brownfield, “The only long-term solution to this is really to get the Strait figured out so that we can get diesel fuel flowing there, and then get Russia so they can get their refineries built back,” Ibendahl said. “Those are going to be the long-term solutions to getting prices down.”
U.S. Energy Secretary Chris Wright said this week that restricting diesel exports could drive gasoline and jet fuel prices higher. There have been reports that the Trump administration is considering a 90-day ban on diesel exports. READ MORE
Excerpt from The Heritage Foundation/The Hill: Adding American distillate fuels into the world markets helps push global prices down, not up. But banning those barrels will raise global prices.
To clarify, a sudden isolation from world markets would drop domestic prices in the very short term and therein lies the political appeal of an export ban. But as prices fall and unsold inventory piles up on the Gulf Coast, refiners will do what any business does when margins disappear: reduce production. Less crude through the system means less diesel, less gasoline, and less jet fuel in the U.S. encouraging more investment in Chinese and Indian refineries, which already passed the U.S. in overall capacity in 2024.
Legislators should remember that refiners do not set prices; markets do. READ MORE
Excerpt from The Washington Post: Railroads are taking business from truckers, while alternative fuel trucks are getting a fresh look. Big oil extractors and refiners are benefiting too, of course. But so are smaller operations that have gotten an indirect boost.
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The biggest driver of growth for Union Pacific is moving freight that could’ve gone by truck, the company said.
Diesel reached a record $6.53 a gallon this week, according to AAA’s national average. That’s up about 75 percent from a year ago.
The national average for a gallon of regular gas, meanwhile, is $4.48 — about 40 percent higher than a year ago, though still well below the $5.02 record set in June 2022.
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When diesel gets pricey, it raises the cost of transporting food and goods — anything that needs to be moved from one place to another.
Now, containers and trailers stuffed with bananas, furniture or flat-screen TVs are increasingly going by rail. This “intermodal traffic” has jumped in recent months, setting a record for U.S. railroads in August, according to the Association of American Railroads.
Railroads run on diesel, too. But freight trains are three- to four-times more efficient based on tons per mile.
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Trucking giants like J.B. Hunt Transport Services have felt pinched. Diesel prices have spiked faster than the firm’s fuel surcharges. But J.B. Hunt has seen a boost to its intermodal service.
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The company said the cost gap between trucking and trains was the largest it had seen.
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Clean Energy Fuels, a company that provides renewable natural gas for vehicles, said they were hearing more interest from trucking fleets “particularly with higher diesel prices,” according to CEO Clay Corbus. READ MORE
Excerpt from Biofuels Digest: And here is where the election story becomes a bioeconomy story. The same agricultural economy that consumes enormous quantities of diesel also supplies the corn, soybeans, animal fats, agricultural residues, and other materials from which America makes renewable fuels. The farmer is both a customer of the fuel industry and a supplier to it. The biorefinery is both a manufacturing plant and a market for agricultural production.
And the policies governing the relationship between them are being debated in the middle of an energy-price shock, with an election approaching and billions of dollars in existing and proposed industrial investments hanging in the balance.
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When crop prices are determined in commodity markets, rising operating costs compress margins unless something else moves in the farmer’s favor. The same math applies to the truck carrying grain to market, the fleet moving biomass to a conversion facility, and the distribution network delivering finished fuel to customers. Which brings us to one of the more curious dualities of the American bioeconomy: a farmer can be hurt by rising fuel costs and benefit from stronger biofuel demand at the same time. A soybean grower may wince at diesel expenses while benefiting from demand for soybean oil used in renewable diesel or biodiesel. A corn grower faces higher field costs while also supplying the ethanol market.
There is no single national answer to whether the net effect is positive or negative. But there is an undeniable industrial reality: agriculture supplies both raw materials and customers to America’s renewable fuels industry. When petroleum prices spike, that relationship moves from the background to center stage.
The alternative fuel question: Can the bioeconomy help?
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The logic is understandable: a country that produces more of its transportation energy from domestic agricultural and industrial resources has more options when petroleum markets become constrained or expensive.
But alternative fuels are not magic wands, and additional production capacity cannot be summoned into existence overnight to stop an immediate price shock. Ethanol is already blended into most American gasoline, but you can’t pour E85 into a conventional Class 8 diesel truck. Biodiesel can be blended into petroleum diesel within applicable fuel specifications and equipment requirements. Renewable diesel, when produced to the appropriate specifications, is a drop-in hydrocarbon fuel compatible with existing diesel applications. SAF addresses aviation.
A renewable diesel facility that is already operating may be able to raise output within the limits of its feedstock supply, equipment and contracts. But a project that has not yet reached Final Investment Decision cannot deliver a single extra gallon next week, no matter how attractive fuel prices become. That brings us to the policies that help determine whether those future plants ever get built.
The Renewable Fuel Standard: A market built by policy
The Renewable Fuel Standard has been a central pillar of American biofuel policy for nearly two decades. Administered by EPA, it requires specified renewable fuel volumes in the transportation pool and uses Renewable Identification Numbers, or RINs, as compliance credits.
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The 45Z question: How long is a long-term investment?
Then there is the Clean Fuel Production Credit, better known as 45Z.
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A large biorefinery can take years to develop, permit, finance, construct and commission. Investors may expect the asset to operate for decades. Now imagine a developer asking a bank syndicate to finance a $500 million plant whose financial model depends materially on tax provisions, carbon-intensity scoring, regulatory interpretations and feedstock rules that may change materially during the project’s development or operating life.
That does not automatically make the project unfinanceable. It does, however, change the price of uncertainty.
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The long clock and the short clock
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A fuel-price shock can arrive in days, yet a new production facility may take years, exposed to tax-rule variations, feedstock infrastructure development constraints, economic conditions that swirl like flurries in the Wyoming winds.
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And the investment decisions that determine what fuels America will be producing ten or twenty years from now will matter long after the last campaign text message has been deleted from our phones.
The political world has six weeks to count the votes. The farmer has a fuel bill to pay today. And the bioeconomy has a much longer job to do. READ MORE
Exercpt from APROBIO:
Brazil faces a significant energy vulnerability due to importing a large portion of its fossil diesel, mainly from the United States, which generates external subsidies and risks of shortages. The warning from the Rio Grande do Sul State Agriculture Federation (Farsul) regarding reports of restrictions and delays in diesel deliveries to rural producers renews concerns about supply security at the start of the summer crop planting season.
Given this concern, APROBIO (Brazilian Association of Biofuel Producers) advocates for the voluntary use of biodiesel above the currently mandatory 15% blend (B15), which no longer requires prior authorization from the National Agency of Petroleum, Natural Gas and Biofuels (ANP). A simple notification to the agency is sufficient for use in public transport, rail transport, inland and maritime navigation, captive fleets, equipment and vehicles intended for mineral extraction and electricity generation, tractors, and other equipment used in agricultural work.
Immediate increase to B17
“Another way to reduce risks is for the federal government to move forward with expanding the use of biodiesel with the immediate implementation of B17, increasing the blend to reduce international dependence as part of the solution,” highlights Jerônimo Goergen, President of APROBIO. “In this sense, the sector is mobilizing resources and efforts to accelerate the tests for increasing the blend to support the decision,” said Goergen. READ MORE
Excerpt from AgWeb: “We’re still going to do tillage on 60% to 70% of our ground,” (Ryan) Vos says. “I know that sounds high, but it’s only because we planted a lot more corn than beans this year. I would say 90% of our bean ground is not going to get tillage.”
That’s a significant change for an operation that traditionally tilled virtually every acre post-harvest.
Vos knows those untilled soybean fields will require attention next spring. The farm isn’t equipped for no-till, so he plans to make a light field-cultivator pass ahead of the corn planter.
“Our planters have to have a seedbed prepared,” he says. “We can’t just go in there and plant.”
For Vos, that makes the decision less about abandoning tillage and more about eliminating passes that aren’t essential.
The Cost Goes Beyond Fuel
The tough economics across farm country are impossible to ignore. Vos says one of his farm’s Quadtrac tractors pulling a disk ripper can burn about 400 gallons of diesel in a day. That can cost him more than $2,500 in fuel alone.
And fuel isn’t the only expense.
Drought-baked Minnesota soils have made this year’s tillage especially hard on equipment. Before receiving rain recently, Vos says the ground was so hard he was concerned about destroying shanks and points.
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Leaving more residue also provides benefits beyond reducing fuel consumption. Residue protects the soil surface and can help capture water and snow — an important consideration heading into what climatologists predict will be another dry, low-snow winter in Minnesota.
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Vos believes today’s high input costs require him to think beyond simply cutting tillage passes.
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That’s one reason he’s beginning to experiment with cover crops.
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Vos wants to see whether cereal rye can help build biological activity in the farm’s hardpan soils. He also hopes it can provide additional grazing opportunities for his beef cattle.
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“The mental toll this takes on farmers” is something people don’t always understand, Vos says.
His message to other farmers is something he hopes they hear clearly.
“It’s OK to not be OK. It’s OK to ask for help. It’s OK to struggle,” he says. “Just know that we’re all in this together, and we all feel it. You’re not alone.” READ MORE