US Oil Refiners Finally Profit from Biofuels Due to Mandates, High Fuel Prices

May 18, 2026

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by Nicole Jao and Siddharth Cavale (Reuters) EPA mandates boost biofuel blending, driving refiner profits; RIN credit prices surge over 80%, enhancing biofuel profits; Soyoil costs, limited supply could limit biodiesel output, analysts say

U.S. oil refiners are finally reaping profits from renewable fuels, which had squeezed margins for years, but now demand has surged thanks to recent government biofuel mandates and rising diesel prices driven by the U.S.-Israeli war on ‌Iran.

In late March, the U.S. Environmental Protection Agency mandated that refiners blend record volumes of biofuels into gasoline and diesel this year and next. The plan includes a 60% increase in the use of biodiesel and renewable diesel, along with a long-standing requirement to mix about 15 billion gallons of ethanol into gasoline each year.

These mandates have pushed U.S. refiners to ramp up biofuels output, reviving profits at a time when global diesel supplies remain tight. This follows a downturn when demand for renewable fuel fell short, oversupply weighed on margins and producers were forced to absorb the hit after rapid expansion five years ago.

Valero, the nation's biggest biofuel producer, saw its renewable diesel ⁠business swing to a $139 million profit in the first quarter from a $141 million loss in the same period last year. Profits for its ethanol business more than quadrupled. Executives at the company have said biofuel mandates provided a "pretty strong tailwind."

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Refiner HF Sinclair's renewable diesel results also swung; it posted a $133 million profit after a $17 million loss a year earlier.

Phillips 66 (PSX.N), opens new tab, one of the largest independent refiners, sharply narrowed losses in its renewable fuels division. The company's renewable diesel plants are running above capacity, Brian Mandell, executive vice president of marketing and commercial, said during an analyst call last month. Investors should expect a "substantial difference" in renewable segment performance from a year ago, he said.

UNEXPECTED WINDFALL

The new biofuel mandates effectively put a floor under biomass-based diesel demand, said John Deal, managing director of capital markets at Post Oak Group.

The new rules are helping drive up the price that refiners can get for tradable Renewable Identification Numbers (RINs). Refiners who blend more biofuel than they are required to can sell these credits to others that lack the capacity to blend enough biofuel themselves.

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Also, diesel prices have spiked during the Iran war, which could push some refiners to maximize conventional diesel production instead. The war has boosted diesel prices 46%, and with ⁠supplies tight, conventional diesel output offers stronger returns in the short term, making it more attractive than expanding renewable diesel production, said Arif Gasilov, a partner at sustainability and ESG consulting firm Gasilov Group. READ MORE

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Valero reports improved Q1 earnings for ethanol, DGD joint venture (Biodiesel Magazine)
Marathon reports improved Q1 for renewable diesel segment (Biomass Magazine)
Phillips 66: Renewable fuel segment currently producing at above nameplate capacity (Biomass Magazine)
Renewable fuel credit prices hit records on US biofuel mandates, oil market volatility -- D4 RINs, tied to biodiesel and renewable diesel, surged to $2.32, significantly up from pre-mandate levels. Ethanol blending credits (D6 RINs) also hit a record reflecting increased demand and production costs. (Economic Times Auto)
Renewable fuel credit prices hit records on U.S. biofuel mandates, oil market volatility (Reuters)
Higher blending targets drive RIN prices close to record highs (US Department of Energy Energy Information Administration)

Excerpt from Reuters: “The primary support for higher prices is the strong EPA mandate,” said Paul Niznik, director of energy at Capstone LLC, noting that increased demand has pushed up the cost for producing biodiesel and its key feedstock, soybean oil. Soybean oil prices have risen about 27% since late February.

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"What may be less well understood is that D4 ⁠prices would have been even higher if not for the Iran conflict," wrote Scott Irwin, an agricultural economist at the University of Illinois and well-known expert on biofuels, in a LinkedIn post on ⁠Thursday.

In the meantime, production of biofuels is still falling short of what is required by the EPA. D4 RIN generation, for instance, rose to just 690 million in April, well below ⁠the roughly 915 million needed each month to meet the mandate, pressuring prices.

Niznik said RIN prices have a lot more room to grow from further oil price retreats. READ MORE

Excerpt from US Department of Energy Energy Information Administration: Compliance credits for biomass-based diesel and ethanol have doubled in value since the start of this year. The credits, known as renewable identification numbers (RINs), have increased in price, mostly because of higher U.S. biofuel blending targets. The combination of high RIN prices and rising motor gasoline and diesel fuel prices has created an especially favorable market for producing and blending biofuels.

RINs are credits generated when biofuels are produced or imported and are used to comply with the Renewable Fuel Standard (RFS) program. Under the RFS, the U.S. Environmental Protection Agency (EPA) sets annual renewable volume obligations (RVOs) for the minimum volume of biofuels that must enter the U.S. fuel supply. Obligated parties—petroleum refiners and motor gasoline and diesel importers—comply either by blending biofuels into petroleum-based fuels or by purchasing RIN credits.

As of June 4, biomass-based diesel (D4) RINs traded at $2.41 and ethanol (D6) RINs traded at $2.37, both close to their all-time highs set in 2021. Because one gallon (gal) generates 1.5 RINs for biodiesel and 1.6 RINs to 1.7 RINs for renewable diesel, these fuels currently generate more than $3.50/gal of credits. A gallon of fuel ethanol generates 1.0 credit.

RIN prices increased in 2026 primarily because of higher blending mandates. On March 27, the EPA announced the final RFS rule for 2026 and 2027, establishing significantly higher RVOs than in 2025. RIN prices increase with high RVOs to reflect the higher profit margins biofuel producers need as incentive to produce enough fuel to meet mandates.

Higher prices for petroleum products make fuel ethanol relatively more attractive to blend into gasoline. Relative to motor gasoline prices, the U.S. Gulf Coast fuel ethanol price, adjusted for energy equivalence, has been lower most days since mid-March. The higher RIN value that blenders using ethanol can then sell on the open market to companies that need to remain in compliance also incentivizes more blending into gasoline. The fuel ethanol discount to gasoline has been more than $2/gal in May and June when adding in the higher RIN value.

Daily U.S. Gulf Coast ethanol discount to gasoline

Data source: Bloomberg L.P.
Note: RIN=renewable identification number; the ethanol discount to gasoline is calculated as (2/3 * Gulf Coast spot gasoline price) – (U.S. Gulf Coast spot ethanol price – D6 RIN price). The gasoline price is multiplied by 2/3 to equate it to ethanol’s energy content.

High RIN values have also supported production and blending margins for biodiesel and renewable diesel. The difference between soybean oil and heating oil prices, the Bean Oil-Heating Oil (BOHO) spread, reflects the profitability of blending biodiesel and renewable diesel without incentives. Typically, RIN prices move with the BOHO spread to maintain margins. However, when RIN values increase relative to the BOHO spread, as they have done in 2026, profit margins for producing biodiesel and renewable diesel generally improve. The rapid increase in RIN values relative to the BOHO spread in 2026 suggests that the new RVOs are a significant driver of increased RIN values and that biodiesel and renewable diesel production margins are much higher than in 2025.

Daily front-month soybean oil price, heating oil price, and BOHO spread compared with biomass-based diesel (D4) RIN value

Data source: Bloomberg L.P.
Note: RIN=renewable identification number; the Bean-Oil Heating-Oil (BOHO) spread is calculated using front-month futures prices of soybean oil and heating oil. The biomass-based diesel (D4) RIN value is based on the RIN value times 1.6. Changes in federal tax credits and state credit values are also among factors that affect biomass-based diesel margins.

We forecast record-high production of fuel ethanol and renewable diesel in 2026 because of high blend mandates, high gasoline and diesel prices, and increasing production capacity at biofuel plants. Biodiesel production also increases, although we have it remaining below record highs because of lost production capacity. Fuel ethanol production increases by 2% in 2026, with the fuel ethanol share of motor gasoline consumption at 10.7%, compared with 10.5% in 2025. Renewable diesel production increases 24% and biodiesel production increases 41% in 2026, compared with 2025. We forecast production of all three fuels to increase further in 2027, when the RVO increases further. READ MORE