Driving Discussions: What’s causing volatility in the RINs market? Prt.1

Author Argus

Over the last month there has been a lot of volatility in the RINs and RVO markets caused by key government decisions.

Listen in as Louise Burke, VP renewables for Argus Media, and Thom Dwyer, US biofuels reporter for Argus Media, give an overview on the RINs and RVO markets, discuss refinery biofuels waivers, and the impacts on the long-awaited decisions on US biofuel blending requirements.

Related links:

Argus RIN and RVO price assessments
Learn more about Argus Americas Biofuels
Listen to other episodes of Driving Discussions


Louise: Hello. And welcome to "Driving Discussions." This is a series where we discuss global road fuels and the major factors that do impact these markets. In this episode, we will discuss the RINs and RVO markets, and some key decisions that have created volatility over the last month. 

Specifically, we'll be looking at the conventional refinery biofuel waivers, how that's affected the market. And we'll also provide a perspective on the long-awaited decisions on U.S. biofuel blending requirements going forward.

"Driving Discussions" is brought to you by Argus Media which, as many of you know, is a leading independent provider of energy and commodity pricing information. My name is Louise Burke, vice president renewables for Argus Media. And with me today is Thom Dwyer, reporter for the U.S. market in biofuels. Hi, Thom.

Thom: Hey, Louise. How are you?

Louise: Good, good. So, Thom, I know you monitor and assess the U.S. biofuel markets every day, including our RINs and our RVO prices. And so, for anyone participating in these markets, the last few weeks have been really volatile. Could you provide us with a recap of developments in these markets that you view is key to this volatility for both the RINs and the RVOs?

Thom: Definitely. It's been a bumpy month for RINs just because of all the policies positioning that's been going on in June. It really all started on June 10th. We had the RVO peak at 23.49 cents a gallon, which was a historic record. It was its highest ever since Argus has been tracking it since 2011.

And then the next day, it's at a one-month low. And that was because the market kicked into a RIN credit selloff because two senators from Delaware met with EPA director Michael Regan over really high compliance costs that obligated parties under the renewable fuel standard had been facing. And the word on the street was they were discussing what type of relief Regan could provide to obligated parties.

And so, RIN credit buyers had been going long since the beginning of the year with President Biden at the helm because they were concerned that biofuel blending mandates were going to be a lot higher than they were previously under President Trump. They saw President Biden as much more partial to biofuels than Trump. So, they went long on credits just to be safe.

And with conversations of relief being discussed, we saw a lot of people unwind from those positions and sell off, which is pretty standard for the RIN credit market. It's very vulnerable to discussions and things like that to get shaken up. And so, we saw RIN credits fall and the RVO fall with them for about a week. And it touched as low as 15.87 cents a gallon on 16 June, which was actually its lowest level since the end of March, before it started to bounce a little bit.

And the bounce came from Democratic congress members writing a letter to the EPA regarding the previous meetings that the Delaware senators had had, basically urging the EPA to stay the course on the RFS, and to not roll back any of these obligations or to provide the relief. They were basically saying, you know, "Hey. The RFS is working as it should be. We don't really see a reason to provide relief." And then ever since, it had kind of stabilized after that. It had kind of bounced a little bit.

Last week, we had a decision from the Supreme Court that was a ruling in favor of obligated parties that basically said more obligated parties are eligible potentially for smaller refinery exemptions, which basically means that they are not obligated under the RFS if they do receive the small refinery exemption. And this decision actually overturned a ruling from the U.S. Tenth Circuit Court that had come down back in January of 2020 that initially widely restricted the eligibility of small refinery exemptions.

Louise: So, just to back up for some of our listeners and define, the Argus RVO is really the assessment, as you were explaining, of the per gallon cost to comply with the renewable fuel standards. And that requires the refiner, as you mentioned, and the importers to ensure minimum volumes of renewables are blended into the gasoline and diesel pool.  The obligated parties can either blend or submit these RINs to ensure they have them or they can buy the RIN.

So, with this decision, obviously, on hardship waivers, this obviously appears like it's a win for oil refiners. Would you say that? And how would the biofuel industry react? And just how many exemption requests are in the pipeline?

Thom: Right. That's a good question. So, currently, for the 2019 and 2020 compliance years, there is a total of 50 petitions for small refinery exemptions pending with the EPA. There's 32 for 2019 and 18 for 2020. So, that's quite a few. But in terms of whether this is a win or a loss, like, if you look at the AFPM, they said, "This is great. This allows more refiners and fuel importers to get relief that they may need if they're suffering economic hardship."

And if you look at biofuel stakeholders, their interpretation of the ruling is that, yes, it makes small refinery exemptions and applying for those more accessible to obligated parties. But that doesn't necessarily mean that they'll be granted one, which I think is an important distinction because these parties can apply for these waivers, but ultimately, it comes down to the Department of Energy to make recommendations for each individual waiver to the EPA. And then the EPA has to ultimately take those recommendations and follow them or not. And so, the ball is very much, in my eyes, in the EPA's court in terms of how they act on these.

Louise: Yeah. And that's very interesting because, clearly, that will continue to create some volatility in the market. And just to move on to, when we look at the next decision that will affect the market. We've certainly heard a lot of discussion on when the renewable fuel standards for 2021will be announced and for future RF standards. Do you have a perspective on that? And how do you expect RINs would react as well?

Thom: At the beginning of this year, there were two giant humps that the market was really sweating. The first was a ruling from the Supreme Court over these small refinery exemptions. And that's out of the way. And now, most of the market looks toward the EPA to drop biofuel blending volumes for 2021 and 2022. So, two weeks ago, the EPA released an agenda item saying that they would propose biofuel blending volumes sometime in July. So, today is July 1st.

So, anytime between now and the end of the month, we could very well see volumes get released, which would be huge for the market because that would reduce the last huge uncertainty that is looming. And then once that happens, we might begin to see the market trade a little bit more around fundamentals such as biodiesel production margins in the BOHO and SBO futures and things like that.

Louise: So, that's great. Thanks so much, Thomas. That was some great insight on some of those factors that we knew was affecting and providing a lot of volatility in the market. Great discussion. We assume we'll continue to monitor this, and provide updates. So, again, thanks, Thomas. And if you enjoyed this episode, you can also tune into other episodes in our series of "Driving Discussions."

And for more information on Argus biofuels coverage and more information on our RINs and RVO assessments, please check the U.S. products report or the Argue biofuels market report, and visit
www.argusmedia.com/biofuels. Thank you.


Related blog posts

02 July 2021

Driving Discussions: New pricing solutions for the transition to E10 in Europe

Learn about Europe's transition to E10 fuel in this latest episode of the Driving Discussions series.


English Europe Oil products Net zero

13 May 2021

Driving Discussions: Colonial Pipeline shutdown and repercussions

This Driving Discussions episode looks at the colonial pipeline shutdown and the impacts to the transportation fuels market over the last few days.


Oil products Crude oil North America

22 March 2021

Driving Discussions: Is the new Administration to blame for high RINs prices?

This Driving Discussions episode looks at the RINs market within the US and explores what has lead to the drastic rise in RINs and RVO costs over the last couple of months.


Oil products Crude oil North America Net zero