PFL Weekly Recap
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Rather than giving our readers a blow by blow daily commentary this week for the markets, we have decided to summarize the week’s activity and list a number of news worthy events to watch for in the coming weeks.
First, expect continued volatility in traditional energy markets as geopolitical risks grow. Most recently a Saudi Arabia journalist, Jamal Khashoggi, was killed inside its consulate in the Turkish city of Istanbul after an apparent brawl. The Saudi’s will do anything that they can do to avoid US sanctions and President Trump is reluctant to do anything given the relationship that it has with the United States, so don’t expect anything to happen in that regard.
The US has signaled the Saudi’s to increase oil production in the coming weeks and we expect that to happen. With their increasing oil production coupled with rising US oil inventories, as US production of crude oil increases, expect the leveling of crude oil prices to drag renewables and other commodities with it.
Renewable Markets in general were down this past week. Current year Ethanol RINS (D6’S) closed the previous Friday at 11 and ½ cents per RIN and ended up losing 1 and ½ cents per RIN during last week’s trading activity closing out the week at 10 cents per RIN. D6 2019 RINS started to trade last week on a more regular basis fetching a 3 cent per RIN premium over current year ethanol RINS.
Current year Biodiesel RINS (D4’S) closed the previous Friday at 33 and ½ cents per RIN and ended up losing 1 and ½ cents per RIN during last week’s trading activity, closing out the week at 32 cents per RIN.
LCFS Credits in California started
off the week at $189 per MT and settled Friday closing out the week at $187.50 per MT down $1.50 per MT. Meanwhile, Ethanol at
Argo started off the week at $1.30 and ½ cents per gallon and also traded down throughout the week closing on Friday at $1.26 and ½ cents per gallon down a nickel on the week. Changes to the RINS market are sure to come. EPA will propose a rule by January to reset volumetric targets under the RFS for cellulosic biofuel and other advanced biofuels for 2020-2022, according to the EPA. A final rule is expected in December 2019. At a resent Opis conference, Paul Argyropoulos, a former senior policy adviser with EPA , stated people were asking what to expect to deal with as we plan our strategy for the next three to five years regarding the RFS and the RIN’s markets. Argyropoulos’ response was: “the answer is that you may not be able to make plans for this industry beyond the next year,” as EPA prepares to rollout a reset, he said.
The reset is coming into play as actual production has fallen far below target rates, so expect target volumes to be lower resulting in lower RIN values. We have already seen pressure and falling prices for D3 RINS. Once the RVO’s are reset, the EPA then plans to focus on proposing a rule that would clear the way for higher ethanol blends to be sold year-round and nationwide in February.
It is rumored that the rule that will be proposed may have restriction on who can trade RINS. Details have emerged in a White House statement that the agency also would be directed to propose regulations placing restraints on RIN trading. As to the Fall 2018 update, The agencies regulatory agenda states that the EPA is proposing regulatory changes to allow gasoline blended with up to 15% ethanol (E15) to take advantage of the 1 psi Reid Vapor Pressure (RVP) waiver that currently applied to E10 during the summer months.
With the current spread between gasoline and Ethanol, we should see higher blending in the summer months and therefore more RINS generated to further pressure RIN values.
As far as new rules on who can trade RINS, the smart ones will be able to work around that. Look at LCFS Credits in California! Hope everyone has a great week!