Many investors and drivers breathed a sigh of relief after the 2024 election. President Trump campaigned hard on bringing down energy costs, and the first year of his second term saw gas prices fall sharply from the year before.
Then the outbreak of the Iran conflict briefly sent oil above $100 a barrel and pushed average gasoline prices past $5 per gallon. Although chances for a peace deal brought oil prices down again and pulled the national average gas price toward $3.95 today, negotiations have hit roadblocks. The price of a barrel of oil is climbing again. Yet a much larger threat to gas prices may be emerging — and it has nothing to do with Iran.
The Coming Crisis
The culprit is a set of aggressive federal rules that require oil refiners to use far more biofuels — fuels made from corn, soybeans, used cooking oil, and animal fats — in the gasoline and diesel Americans buy every day.
When refiners cannot blend enough biofuel, they must buy compliance credits (called renewable identification numbers, or RINs) on the open market. Those RIN prices have soared because the government’s targets now exceed what the country comfortably produces. The mechanics are straightforward.
Every year the EPA sets a growing quota for biofuels that must enter the domestic fuel supply. Refiners can meet the quota by actually mixing in ethanol or renewable diesel, or they can buy RINs generated by biofuel producers. When there aren’t enough RINs to go around, their prices jump. Refiners then pass much of that extra cost along the chain, ultimately hitting the pump.
In late March, the EPA finalized record-high targets of roughly 25.82 billion RINs required for 2026 and 25.98 billion for 2027. These are the largest mandates in the program’s history. The rules also put about 70% of exemptions previously granted to small refineries back into the general pool, raising the burden on larger players.
The Current Squeeze
Biofuel production continues to expand, but not quickly enough to create a comfortable cushion against the EPA’s increasingly aggressive targets. The buffer of unused RINs built up in prior years is running low.
EPA data released June 18 showed 2.02 billion credits generated in May — up 4% from last year — but the overall cushion continues to shrink. Bloomberg analysts expect it will hit zero at the end of this year and go into deficit in 2027.
This shortage has already driven RIN prices to all-time highs, from around $1 at the start of the year to almost $2.25 today. Refiners without their own biofuel production face the full hit when they buy on the open market. The growing pressure has already sparked a legal challenge.
The American Fuel & Petrochemical Manufacturers trade group argues the mandates are unrealistic, could cost more than $100 billion over two years, and may force refiners to limit domestic fuel sales to remain compliant. They estimate the impact could mean gas prices rise by $0.26 to $0.45 per gallon — on top of the elevated prices that are already likely to remain.
Winners and Losers Among Energy Stocks
Valero Energy (NYSE:VLO | VLO Price Prediction) has emerged as a potential standout winner from the coming crisis. The company operates large ethanol plants and holds a major stake in Diamond Green Diesel, one of the country’s biggest renewable diesel facilities. In the first quarter, Valero’s renewable diesel segment reported $139 million in operating income — a sharp turnaround from a $141 million loss in the year-ago period. Its ethanol business added another strong contribution. This vertical integration lets Valero generate many of its own credits instead of buying them at inflated prices.
Similarly, ethanol producer Archer-Daniels-Midland (NYSE:ADM) reported a 48% increase in operating profit for its carbohydrate solutions segment, while operating profit for its Vantage Corn Processors unit — which includes ADM’s dry mill ethanol plants — nearly quadrupled. It expects the improved margin environment for ethanol to continue in Q2.
In contrast, pure merchant refiners like PBF Energy (NYSE:PBF) lack big biofuel arms and must purchase most credits externally, which squeezes margins when prices rise.
Key Takeaway
Investors should view the coming RIN squeeze as a reminder that energy markets are often shaped as much by regulation as by geopolitics. While headlines remain focused on Iran and oil prices, refiners are increasingly focused on compliance costs that could ripple through the entire fuel supply chain.
Companies with meaningful renewable diesel and ethanol operations, such as Valero, may be positioned to benefit as credit prices rise, while refiners that must purchase credits on the open market could face margin pressure. As earnings season approaches, investors should pay close attention to management commentary on RIN costs, renewable fuel profitability, and the outlook for EPA mandates.
The next major move in gasoline prices may have less to do with events overseas than with decisions being made in Washington.
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