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Stronger RVO aids US Gulf jet margins

  • Mercados: Oil products
  • 08/12/20

US Gulf coast jet fuel has managed to eek out a marginal premium over diesel for the past two months for refiners with the flexibility to toggle yields between the two, thanks in large part to the rising cost of environmental compliance which applies to diesel but not jet.

Renewable volume obligation (RVO), an aggregated cost of Renewable Identification Number (RIN) credits for refiners producing gasoline and diesel for domestic consumption, rose to a three-year high of 9.36¢/USG yesterday, partly as obligated parties short on biodiesel credits raised bids amid a shortage of sellers. RIN credits have been gaining since the US election in November, as the industry saw renewed support for biofuels under US president-elect Joseph Biden.

Accounting for the cost of RVO, Gulf coast Colonial pipeline jet fuel has fetched premiums over ultra-low sulphur diesel (ULSD) for the past six sessions, ending yesterday at 2.54¢/USG above ULSD. Around this same time last year, RVO was below 3¢/USG, and jet fuel with RVO added was fetching below 2¢/USG over diesel.

The higher RVO adds to the cost of producing diesel, and it may have provided some incentive for refiners to raise jet fuel yields in recent months, along with higher jet consumption] and rising air travel.

Gulf coast Colonial pipeline jet fuel margins against Houston WTI reached $7.06/bl yesterday, the highest level in about eight months without taking into account the RVO.

Rising RVO could also incentivize refiners to classify some of their diesel production as ultra-low sulphur heating oil, which is also exempt from RVO and otherwise interchangeable with on-road diesel. Heating demand in the US northeast has contributed to the seasonal demand lift for diesel.


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