EPA, CFTC Asked to Investigate Alleged Manipulation in Biofuels Market
by Alex Guillén (Politico Pro) The Renewable Fuels Association today asked the Commodity Futures Trading Commission and EPA to investigate whether anyone is manipulating the market for a key biofuels compliance credit to drum up support for repeal of the Renewable Fuel Standard.
In a letter, the group suggests there may be foul play at work in the market for Renewable Identification Numbers, or RINs, credits that are used to account for each gallon of biofuel produced. The credits can then be traded for compliance purposes for refiners that may not be able to meet their requirements directly.
“Given the evidence of ample RIN supplies, the recent spike in RIN prices appears contrived and driven by something other than basic supply-demand fundamentals,” Dinneen writes. “Indeed, the spike raises renewed questions about potential manipulation of the market by entities who may believe the specter of higher RIN prices supports their political efforts to repeal or reform the RFS.” READ MORE (subscription required) and MORE (Reuters) and MORE (Platts) and MORE (San Antonio Express News/Bloomberg News) and MORE (Argus Media) and MORE (Bloomberg) and MORE (WNAX; includes AUDIO) Letter
Excerpt from letter: Curiously, however, RIN values began rapidly escalating in early June, eventually hitting 98 cents on July 13. While various theories have been advanced, the real reasons for this dramatic increase in RIN prices remain unclear. Basic market fundamentals suggest RIN prices should have remained stable—or fallen—following the proposal’s release. Record ethanol production in 2015 enabled net RIN generation to significantly outpace the 2015 RFS volume obligation, meaning RINs were added to stocks.8 Further, RIN generation through the first half of 2016 indicates that more RINs will be generated than are required for 2016 compliance, meaning stocks will grow further.9 Finally, the outlook for renewable fuel production and RIN generation strongly suggests that EPA’s proposed volume requirements for 2017 can be met without drawing down RIN inventories; in fact, RIN stocks would be generally unaffected even if EPA’s final rule raised the proposed 2017 volume to the statutory level (a 1.4% increase over the proposed volume).10 Accordingly, the CEO of a refining company told investors on July 27 that the “fundamentals don’t support RIN prices nearing a dollar.”11 We agree.
Given the evidence of ample RIN supplies, the recent spike in RIN prices appears contrived and driven by something other than basic supply-demand fundamentals. READ MORE