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Outlook 2019: RINs market looks toward Washington in 2019

Houston — The market for Renewable Identification Numbers looked for relief in 2019 after a tumultuous 2018.

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Uncertainty over the nation's renewable fuel policy created a volatile market for RINs, the credits used by refiners and fossil fuel importers to prove compliance with federal renewable fuel blending mandates. Whether that happens will depend on the decisions and actions of the US Environmental Protection Agency.

PRICES TAKE A TUMBLE

The bad news came fast in 2018 for RINs buyers and sellers. After D6 ethanol RINs for 2017 reached the highest level of 2017 on October 31, 2017, at 98.50 cents/RIN, prices began tumbling down. The new year brought little relief, as 2018 D6 RINs continued to fall into January.

The market hit bottom on November 13, when D6 RINs for 2018 compliance were assessed at 7 cents/RIN. Three weeks earlier, on October 24, D4 biodiesel RINs reached their lowest level for 2018 at 30 cents/RIN.

WAIVER PROGRAM SUSPENDED

Entering 2019, the RIN markets have several key issues that have the potential to impact prices. First and foremost will be the EPA's decision on its small refinery exemption program.

Under the Renewable Fuel Standard, a refinery with a capacity with 75,000 b/d or less can petition the EPA for a waiver from meeting federal blending mandates, which is dependent on the refinery demonstrating an economic hardship. The EPA has not reallocated those waived volumes into future blending mandates. Biofuels supporters argue that federal law requires the agency to do so. Not doing so, they argue, creates a back door for refiners to undermine the blending regulations, as the total mandated volumes of biofuels is essentially reduced by the amount that the small refineries would have been required to blend.

The program came under more scrutiny late in 2018, when published reports showed that large oil companies were granted waivers for their smaller refineries.

The EPA has announced that it will suspend the program pending a review in 2019. Since RIN prices fell sharply during 2018 due to multiple published reports about the waivers, it can be expected that the suspension will mean the program would have less of an impact in 2019. However, until some decision is made on the program, the waivers will be a specter hanging over the RINs markets.

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RIN REFORM ON THE WAY?

Trump's attempts to placate both renewable fuels proponents, including the farm lobby and the oil refining sector played havoc with RIN markets during the last two years. Every proposed deal between the two sides included changes to the RIN scheme. The market, in each case, reacted to the uncertainty by predominantly falling.

In October, the White House announced it would consider possible changes to the RIN market. Possible changes include eliminating third-party buyers and sellers and time limits on holding RINs. The announcement drove prices further down.

And while any possible change in federal rulemaking likely is months away - and would likely be litigated thoroughly -- any move to constrict the number of buyers in a marketplace would be likely impact prices.

POLITICS DISAPPEARING?

Of course, there is a possibility that no changes will be imposed. The White House in 2018 was anxious to find an accord that would appease both Midwest farmers and oil companies, two parts of his political base. Much of the posturing came ahead of the 2018 midterm elections.

Now that the elections are done, little has been mentioned about any changes to renewable fuels policy.

With the Democrats now in control of the US House of Representatives, it's possible that the White House and Congress will focus on hot-button issues that grab more headlines than renewable fuels policy.

And for a market battered by bad news for most of 2018, a lack of headlines would likely be just fine.

-- Wesley Swift, wesley.swift@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com