RINs eerily calm ahead of imminent storm

Biofuels RINs prices haven’t been misbehaving like they did last year.

After exploding onto the scene and becoming one of the most volatile commodities on the planet in 2013, those once-pesky RINs have been strangely subdued. The calm before the storm is especially peculiar alongside a rapidly growing confidence that the storm is imminent.

Ethanol RINs opened up 2013 around 5 cents/RIN, ¬†peaked near $1.50/RIN in July and plunged to about 35 cents/RIN by the end of the year. Fears of hitting the 10% ethanol gasoline blendwall — where ethanol constitutes 10% of the nation’s gasoline pool, and technical issues prevent the blending of additional quantities — drove a wild vehicle of skyrocketing demand, and Congressional hearings, policy changes and endless rumors added further turbulence to the ride.

But now nearly four months into 2014, biofuels RINs prices haven’t changed much at all. Ethanol RINs are hovering around two-month lows of 40 cents/RIN, and the biodiesel and advanced biofuel RINs prices aren’t much higher. They’re an oddly tight-knit group in the US Environmental Protection Agency’s Renewable Fuel Standard waiting room.

RINsRINs prices plunged when the EPA proposed a significantly lower biofuels blending mandate for 2014, putting the mandate at less than what 10% of the total fuel pool would be. Since then, obligated parties have sought to position themselves in a comfortable middle-ground price for when the final rule is announced.

Depending on that decision, prices could explode as much as 50% lower or 200% higher.

“I think, early on, many participants recognized the risk of an adjustment, if any, was now skewed to the upside based on where the proposed levels were set,” said David Dunn, CFA at Florida-based brokerage Progressive Fuels Limited.

At the Advanced Biofuels Leadership Conference in Washington this week, nearly everyone sitting in the room seems to think that the final rule will be higher than the proposal. No matter who you ask — lobbyists, obligated refiners, biofuels producers or even government officials outside of the EPA — the predominant sentiment is that a higher final rule is coming.

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For 2014, the EPA has proposed cutting the required volume of biofuels to 15.21 billion gallons, down from 16.55 billion gallons in 2013.

But if they’re so confident that the 2014 mandate is going higher, why aren’t RINs going up, accordingly?

One RINs trader at an obligated party said that the combination of a significant carryover of 2013 RINs and promising production figures through the opening quarter of 2014 has kept RINs prices cheaper at face value.

If the EPA were to announce a higher final rule — supposedly, on or before June 20 — that irrational explosion will likely return, the trader said.

Until then, we’re all in the EPA waiting room.

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Comments

  1. John Kingston at April 22, 2014 2:39 pm

    Jordan and I have had this discussion separately. I accept that the market for RINs has reacted to movement in the ethanol production numbers, but ultimately, it doesn’t make much sense. The ethanol industry in the US is not in danger of supplying an inadequate amount of product to meet the RFS; in fact, the opposite is true, where the industry produces too much product, and the blendwall makes much of it redundant. So if that’s not a concern, it’s hard to understand why rising numbers should reduce the price of RINs. Taking it to an extreme, yes, if ethanol output was zero, it would be easy to see why the price of existing RINs would rise. But that’s not what we have here. Yet, Jordan says the market does react to those numbers, so clearly, it’s a factor, even if you could argue–well, at least, I can argue–that it shouldn’t be.

     

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