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\u00a9 Tom Merton \/ OJO Images via Getty Images<\/p>\n
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.\u00a0<\/p>\n
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<\/a>. The price of a barrel of oil is climbing again. Yet a much larger threat to gas prices may be emerging \u2014 and it has nothing to do with Iran.<\/p>\n The Coming Crisis<\/p>\n The culprit is a set of aggressive federal rules that require oil refiners to use far more biofuels \u2014 fuels made from corn, soybeans, used cooking oil, and animal fats \u2014 in the gasoline and diesel Americans buy every day.\u00a0<\/p>\n 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\u2019s targets now exceed what the country comfortably produces. The mechanics are straightforward.\u00a0<\/p>\n 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\u2019t enough RINs to go around, their prices jump. Refiners then pass much of that extra cost along the chain, ultimately hitting the pump.<\/p>\n 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\u2019s 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.<\/p>\n The Current Squeeze<\/p>\n Biofuel production continues to expand, but not quickly enough to create a comfortable cushion against the EPA\u2019s increasingly aggressive targets. The buffer of unused RINs built up in prior years is running low.\u00a0<\/p>\n EPA data released June 18 showed 2.02 billion credits generated in May \u2014 up 4% from last year \u2014 but the overall cushion continues to shrink. Bloomberg analysts expect it will hit zero<\/a> at the end of this year and go into deficit in 2027.\u00a0<\/p>\n 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.<\/p>\n 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 \u2014 on top of the elevated prices that are already likely to remain<\/a>.<\/p>\n <\/p>\n <\/a><\/p>\n Regulation is rewriting the energy market, and your wallet is the target. Discover the hidden ‘squeeze’ driving fuel costs to new highs. Winners and Losers Among Energy Stocks<\/p>\n Valero Energy (NYSE:VLO<\/a> | VLO Price Prediction<\/a>) has emerged as a potential standout winner from the coming crisis. The company operates large ethanol plants<\/a> and holds a major stake in Diamond Green Diesel, one of the country\u2019s biggest renewable diesel facilities. In the first quarter, Valero\u2019s renewable diesel segment reported $139 million in operating income \u2014 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.<\/p>\n Similarly, ethanol producer Archer-Daniels-Midland (NYSE:ADM<\/a>) reported a 48% increase in operating profit for its carbohydrate solutions segment, while operating profit for its Vantage Corn Processors unit \u2014 which includes ADM\u2019s dry mill ethanol plants \u2014 nearly quadrupled. It expects the improved margin environment for ethanol to continue in Q2.<\/p>\n<\/p>\n
\n \u00a9 24\/7 Wall St.<\/p>\n