RINs prices react strongly to US political news, despite uncertain impacts

Video Transcript

Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.

The political tidal wave sweeping Washington DC has created rough seas for the market for Renewable Identification Numbers, which are used to comply with federal renewable fuel blending rules. The already volatile market has been roiled in the last three months, sending prices for the credits soaring and spiking.

In November, news from the US Environmental Protection Agency sent prices up 23% in a matter of days, after it was announced that the 2017 Renewable Volume Obligations would be nearly 500 million gallons higher than originally proposed in June. D6 ethanol RINs peaked at $1.0750/RIN on December 2, and D4 biodiesel RIN reached $1.2175/RIN.

But the surge was short-lived. A week later, reports that President Donald Trump would nominate Scott Pruitt, a vocal critic of the Renewable Fuel Standard, to head the EPA sent RIN prices reeling. News that another critic of the RFS, Carl Icahn, would serve as an adviser on deregulation sent RIN prices dropping further less than two weeks later.

And in recent weeks, Pruitt’s confirmation hearing and an announced delay in the implementation of the 2017 RVO have further rattled the markets, pushing RIN prices 60% lower by February 1.

The market’s reaction to these developments has shown that any type of news from Washington is likely to make what appears to be a jittery market react strongly, regardless of what the final impact will be. For instance, the majority of supporters and critics of the RFS said the EPA’s recently announced delay would have little impact on this year mandate. But the market still found enough to worry about to send RIN prices downward.

This comes at a time when renewable fuel industry supporters were expecting to reach record levels of production. And some analysts predicted in mid-2016 that limited ethanol production capacity would push RIN prices to higher and higher levels in 2017. The market now seems to have real doubt about the future of the RFS under the Trump administration.

But there’s still much to be determined. The Midwest US is Trump country, a key part of the country that supported his campaign and Republicans in Congress. It’s also the heart of the US biofuels industry, which provides jobs to the area. And the RFS is popular with federal lawmakers on both sides of the aisle. The bottom line is that this story is far from over.

Until next time on the Snapshot, we’ll keep an eye on the markets.