After another attempt to advance a peace arrangement with Iran faded into stalemate, biofuel markets have returned to a familiar narrative: high prices supported by strong heating oil values and elevated RIN prices.
The result has been a significant improvement in producer margins. Biofuel margins are now strongly positive and sitting at their highest levels in more than two years.
In 2024, profitability leaned heavily on the $1/gal blender's tax credit. However, today's margin strength appears to be driven more by robust underlying market fundamentals.
According to Prima CarbonZero data, RIN generation rates moved higher in April as renewable diesel producers increased capacity utilization. But biodiesel production itself has been slower to recover.
That lag reflects two key challenges. First, the biodiesel sector is still dealing with capacity scarring after two years of difficult economics. Second, smaller biodiesel operators continue to face challenges in turning the 45Z tax credit into a reliable source of cash flow.
Biofuel imports are also gaining momentum. But the pace remains gradual.
When viewed together, these factors point to an effectively net-short 2026 market for operational renewable diesel and biodiesel producers.
That tightness continues to support the view that D4 RIN prices will need to remain elevated to bring more marginal production capacity back online. Thus far, the market has delivered on that expectation, with D4 RIN prices continuing to push above $2.
This strength has persisted even as the BOHO spread has performed more weakly in recent weeks. Biomass-based diesel feedstock markets remain tight. In fact, they may even be tighter than fossil distillate markets, which are themselves increasingly destocked.
Biofuel profitability is no longer being driven primarily by subsidy support. Instead, stronger heating oil values, elevated RIN prices, tight feedstock markets, and constrained production capacity are doing more of the work.
For producers already operating in the market, this creates a favorable pricing environment. But for the broader sector, it also highlights a key challenge. Attracting enough marginal capacity back into operation will likely require sustained price support across the RIN market.
The Iran war has added another layer of uncertainty to an already tight biofuels market. With energy prices, feedstock costs, RIN values, and renewable diesel margins all moving under heightened geopolitical pressure, market participants need more than headline-level coverage.
Now more than ever, it's crucial to understand how the conflict could affect fuel pricing, biofuel demand, feedstock competition, import flows, and policy-driven market incentives.
ResourceWise will explore these dynamics in our upcoming webinar, Q2 2026 Biofuels Outlook: Iran War Implications. During this live session, we’ll offer a closer look at the market signals shaping the next phase of the biofuels and low-carbon feedstocks market.
Register for the webinar to better understand where biofuels markets may be headed and what the latest geopolitical disruption could mean for your strategy.
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