D6 RINs prices reach $2/RIN even as small refineries hold off buying

Current-year US Renewable Identification Numbers traded at an all-time high of $2.00/RIN during morning trading June 10, despite the landscape of buyers shrinking as small refineries held off on purchases in the hope of relief from the Supreme Court.

S&P Global Platts assessed 2021 D6 RINs at $1.97/RIN June 10 as they traded lower over the day, but the assessment was up $1.9575/RIN on June 9. Platts assessed D6 RINs at an all-time high of $1.9775/RIN on June 8.

"We continue to put out the base case that we've received the exemptions [in the past]," said small refiner Calumet Specialty Partners CFO Todd Borgmann during the virtual Bank of America Merrill Lynch June 9 Global Technology conference. Borgmann added the company is operating as if they will receive exemptions in 2019 and 2020.

"In any case, there is no cash event in the near-term future," he said about the impetus for to buy RINs.

Other small refiners have also held back from buying. CVR Energy on its first quarter 2021 earnings call also spoke of an "elevated RINs prices and our open RIN position" which helped drive a decline in earnings.

Under the Renewable Fuel Standard, a refinery with throughput capacity below 75,000 b/d can petition the Environmental Protection Agency for a Small Refinery Exemption from complying with biofuel mandates.

In January 2020, the 10th Circuit Court of Appeals ruled that refiners could only qualify for an extension of an exemption granted at the beginning of the RFS, an interpretation that would severely limit the number of exemptions the EPA could grant.

Refiner HollyFrontier appealed the decision and the case was argued before the Supreme Court on April 27 and the market continues to await word from the high court.

With the coronavirus pandemic pressuring refining margins, some small refineries have elected to put a hold on buying RINs to meet their 2019 and 2020 RFS mandates to try to hold onto cash and given the uncertainty surrounding not only the Supreme Court decision but also the EPA's delay in providing a renewable volume obligation for 2021.

The higher RINs have driven compliance costs to record highs as well. The Platts Renewable Volume Obligation was 23.3351 cents/gal on June 10, up from 23.1996 cents/gal on June 9, though down modestly from its all-time high of 23.4193 cents/gal on June 8. Refiners and fuel traders watch the RVO – a value calculated using daily RIN prices and biofuel mandates – for per-gallon compliance costs.

The EPA issues a RIN to track renewable fuel usage throughout the supply chain. Refiners and importers -- called "obligated parties" – use them to show the EPA that they have fulfilled their mandated government use of renewable fuels. If the obligated party has not used enough physical product, it can buy RINs to satisfy the quota.

EPA delay worsens confusion for market

The EPA missed a November 2020 deadline to finalize 2021 biofuel blending mandates, with no announcement in sight.

The agency typically proposes next-year mandates in June to allow a multi-month public comment period before finalizing the rule, meaning any mandates proposed in the coming weeks would take until late fall to finalize.

But sources have said the EPA is not eager to set mandates without hearing from the Supreme Court on how to interpret the law surrounding small refinery exemptions.

"There's a lot being discussed," according to a refining source familiar with the situation. "And the EPA has no direction. They are paralyzed by the small refinery case. They will wait for the decision on the [Small Refinery Exemption] before they release the biofuel mandate," which could potentially be delivered in June or July, he added.

Agriculture strength bolsters prices

Though the market continued to eye Washington for any news that could cause a dramatic swing in prices, a steady rally in biofuel feedstock prices since July 2020 has added support to RIN values.

CBOT soybean oil futures skirted all-time highs in recent days as well, settling at 71.59 cents/lb on June 9 after sliding from a multi-year high of 72.08 cents/lb on June 8. Values just one year ago hardly crested 28 cents/lb before robust demand and damage to soybean crops in the US and Brazil pushed values higher.

Soybean oil is the primary feedstock for biodiesel in the US, which in turn is the primary source of D4 RINs.

Potential drought in the US Midwest has fueled concerns about the recently planted crop, continuing to support prices.

"Everyone I speak to is chalking it up to strength in agriculture along with inflationary pressure and strong demand," said another source watching RIN markets, though added the recent credit rally seemed to outpace feedstock gains. "I think the stars really need to align perfectly on the policy front in order to create a bearish environment, but the bucket of excuses seems empty at this point."