The jump in supply has slashed the value of credits refiners earn under the RFS for producing or importing biofuels. D4 Renewable Identification Numbers (RINs) – those tied to biodiesel and renewable diesel – earlier this year fell below 40 cents a gallon, their lowest since 2019. They are currently around 44.50 cents, down from an average of $1.50 last year.
This is also hitting refining margins and prompting some companies to shutter facilities. Valero saw a 21% year-on-year decline in margins for renewable diesel, while Vertex Energy last week said it would convert a small renewable diesel facility in Alabama back to fossil fuel production. Chevron recently shuttered two biodiesel plants due to unfavorable market conditions.
The growing supply of renewable and biodiesel is also displacing a growing amount of petroleum-based diesel. Product-supplied of distillate fuel oil – a proxy for demand – fell to 3.9 million bpd in February of this year, down from 4 million bpd the same time last year. That, however, was offset by an increase in supply of biodiesel and other renewable fuels which rose to 300,000 bpd, from 200,000 bpd a year earlier, according to U.S. government data.
More recently, petroleum-based diesel markets have faced their own problems, with softer demand and higher supply also hitting margins for refiners. The crack spread for diesel fell to a two-year low of $20 a barrel in April, down from $40 two months earlier.
The four-week average demand for distillate fuels – which includes diesel and heating oil – was at its weakest level since the pandemic last week, according to U.S. government data, while inventories are at their highest seasonal level in three years.
