'RINSANITY' SEES ETHANOL RINS HIT $1/GAL; MAY BE
IMPACTING NYMEX RBOB
Friday, March 08, 2013 11:19:47 AM
Ethanol RINs hit a value of $1/gal Friday morning up
93cts/gal so far this year and more than twenty times
the value seen less than six months ago. Biodiesel
RINs aren't exactly slouching either. Those RINs hit
$1.06/gal in early trading with no end to the viral
surge in sight. It now appears as though the soaring
RINs values may be impacting NYMEX futures action
as well.
The surge in RINs -- Renewable Identification
Numbers necessary to balance out any deficit in
achieving Environmental Protection Agency
obligations for the Renewable Fuel Standard -- has
been ongoing all year but a particularly frenetic pace
has been witnessed this week.
Ethanol RINs began the week just above 50cts/gal but
fears about a shortfall and the consequences of
hitting a blend wall have sent sellers to the sidelines
and put buyers (refiners and importers) in a pinch.
RINs were worth just 7cts/gal on the first business
day of 2013. RBOB futures this morning advanced as
much as 5cts/gal and there is some suggestion that
the high cost of RINs has inflated the NYMEX
numbers. Obligated parties for RINs are limited to
refiners and importers.
When a company takes title to RBOB through the
NYMEX futures' delivery mechanism they do so
without incurring the RINs obligation notes consultant
Andy Lipow. An importer can get gasoline via the
NYMEX at a 10cts/gal discount to the offshore price
in other words since they do not incur the RINs
obligation. This may become particularly topical if
refinery margins narrow.
An East Coast refiner selling gasoline at 20cts/gal
above crude and operational costs might turn to the
NYMEX (or domestic spot market) for barrels rather
than produce the fuel and face a 10cts/gal margin
reduction because of RINs costs. Right now that is
more hypothetical than actual since many refiners are
seeing gasoline cracks that are $10/bbl or more
above crude costs. But for importers the calculus
already delivers a huge disadvantage for anyone
looking to bring in foreign gasoline. In a sense
gasoline "crack" spreads -- as measured by spot
indices and futures markets -- have lost some of
their relevance.
A Gulf Coast refiner found CBOB prices this morning
of about $2.87/gal or about $120.50/bbl. On the
surface that reflected a reasonable $7/bbl crack over
the price of Light Louisiana Sweet crude a key Gulf
Coast benchmark. But when adjusted for the
10cts/gal RINs cost a merchant refiner without
downstream racks or blending privileges instead
would receive about $2.77/gal for the gasoline or
about $116.30/bbl. That puts the hypothetical crack
at less than $4/bbl.
Downstream marketers and blenders meanwhile
continue to reap some windfalls or perhaps more
appropriately "RINfalls" as the credit prices soar. The
RINs value for a jobber blending 1-million gal of E10
(and 100000 gal of ethanol) in 2012 might have been
$5000 based on an average RINs price of 5cts/gal.
The hypothetical value implied by current numbers
for that same volume in 2013 at $1/gal per RIN is
now $100000.
(h/t Tom Kloza)
IMPACTING NYMEX RBOB
Friday, March 08, 2013 11:19:47 AM
Ethanol RINs hit a value of $1/gal Friday morning up
93cts/gal so far this year and more than twenty times
the value seen less than six months ago. Biodiesel
RINs aren't exactly slouching either. Those RINs hit
$1.06/gal in early trading with no end to the viral
surge in sight. It now appears as though the soaring
RINs values may be impacting NYMEX futures action
as well.
The surge in RINs -- Renewable Identification
Numbers necessary to balance out any deficit in
achieving Environmental Protection Agency
obligations for the Renewable Fuel Standard -- has
been ongoing all year but a particularly frenetic pace
has been witnessed this week.
Ethanol RINs began the week just above 50cts/gal but
fears about a shortfall and the consequences of
hitting a blend wall have sent sellers to the sidelines
and put buyers (refiners and importers) in a pinch.
RINs were worth just 7cts/gal on the first business
day of 2013. RBOB futures this morning advanced as
much as 5cts/gal and there is some suggestion that
the high cost of RINs has inflated the NYMEX
numbers. Obligated parties for RINs are limited to
refiners and importers.
When a company takes title to RBOB through the
NYMEX futures' delivery mechanism they do so
without incurring the RINs obligation notes consultant
Andy Lipow. An importer can get gasoline via the
NYMEX at a 10cts/gal discount to the offshore price
in other words since they do not incur the RINs
obligation. This may become particularly topical if
refinery margins narrow.
An East Coast refiner selling gasoline at 20cts/gal
above crude and operational costs might turn to the
NYMEX (or domestic spot market) for barrels rather
than produce the fuel and face a 10cts/gal margin
reduction because of RINs costs. Right now that is
more hypothetical than actual since many refiners are
seeing gasoline cracks that are $10/bbl or more
above crude costs. But for importers the calculus
already delivers a huge disadvantage for anyone
looking to bring in foreign gasoline. In a sense
gasoline "crack" spreads -- as measured by spot
indices and futures markets -- have lost some of
their relevance.
A Gulf Coast refiner found CBOB prices this morning
of about $2.87/gal or about $120.50/bbl. On the
surface that reflected a reasonable $7/bbl crack over
the price of Light Louisiana Sweet crude a key Gulf
Coast benchmark. But when adjusted for the
10cts/gal RINs cost a merchant refiner without
downstream racks or blending privileges instead
would receive about $2.77/gal for the gasoline or
about $116.30/bbl. That puts the hypothetical crack
at less than $4/bbl.
Downstream marketers and blenders meanwhile
continue to reap some windfalls or perhaps more
appropriately "RINfalls" as the credit prices soar. The
RINs value for a jobber blending 1-million gal of E10
(and 100000 gal of ethanol) in 2012 might have been
$5000 based on an average RINs price of 5cts/gal.
The hypothetical value implied by current numbers
for that same volume in 2013 at $1/gal per RIN is
now $100000.
(h/t Tom Kloza)
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