NYMEX product prices slide after high court decision prompts RINs selloff

US refined product futures settled lower June 25 on the heels of a US Supreme Court decision to allow small refiners to apply for exemptions from the US Environmental Protection Agency's Renewable Fuel Standard after lapses in application.

NYMEX July RBOB settled down 1.70 cents at $2.2639/gal, and July ULSD moved 1.30 cents lower to $2.1493/gal.

Product prices moved sharply lower midmorning, tracing a slide in Renewable Identification Number prices after the high court reversed a lower court decision and upheld the Small Refinery Exemption, which was created under the RFS as a safety valve for refineries with a capacity of less than 75,000 b/d if the cost of compliance created financial hardship.

The 10th Circuit Court vacated a previous EPA ruling giving the exemption to three refineries -- including HollyFrontier's Cheyenne plant -- after complaints from renewable fuel groups that felt that the refineries were ineligible for the exemption since they had "allowed previous exemptions to lapse."

D6 RINs down sharply

D6 RINs for 2021 compliance fell sharply after the opinion was released. S&P Global Platts assessed 2021 D6 RINs at $1.4700/RIN June 25, down from $1.6675/RIN June 24.

While outright futures prices later clawed back much of the morning's rout, product cracks, which have a RINs component baked in, moved lower. The price action was due to paper traders selling ULSD and RBOB cracks as a proxy to short the illiquid RINs market, S&P Global Platts Analytics analyst Sergio Baron said.

The ICE New York Harbor RBOB crack versus Brent fell to $18.90/b in afternoon trading, in from a June 24 close of $20.20/b, while the NYH ULSD crack versus Brent was down to $14.22/b from $15.37/b the session prior.

Crude prices increase

In contrast, bullish demand outlooks continued to support crude prices.

NYMEX August WTI climbed 75 cents to settle at $74.05/b -- the highest since Oct. 9, 2018 -- and ICE August Brent was up 62 cents at $76.18/b.

"Crude prices rallied on an improving demand outlook and over expectations the market will remain tight as OPEC+ is likely to only deliver a small boost to output at the July 1st ministerial meeting," OANDA senior market analyst Ed Moya said in a note. "The energy markets are still optimistic that the delta-plus COVID-19 variant won't derail the reopening momentum seen across Europe and Asia."

The average utilization rate of China's four state-owned refineries rose by two percentage points on the month to a four-month high of 82.4% in June, compared with 80% in May and 76% in April, as more refineries restarted from scheduled maintenance, S&P Global Platts data showed June 25.

As a result, the country's crude throughputs are expected to rise further from the record high in May. China had processed 14.31 million b/d, or 60.5 million mt of crude, in May, data from the National Bureau of Statistics showed.