Do you remember RIN-sanity? That was when the Renewable Identification Number (RIN) credits markets went crazy as the poorly thought out rule to encourage more renewable fuel to what was then a tight gasoline market caused crazy moves and outright market panic! Well, RIN-Sanity was back yesterday as a report by Bloomberg News, that was later denied by the Whitehouse, caused insane moves in RINs and other markets.
Crude oil prices, ethanol prices, bean oil and grain prices went on a wild ride on reports that President Donald Trump was going to issue an executive order raising the amount of ethanol and biofuel credits for all refiners, thereby reducing the amounts of RIN credits that small refiners would have to buy. This is what many small refiners wanted as the broken RIN market has caused small refiners to almost be driven out of business.
The standards, which were enacted back in the days of the George W. Bush administration, were written at a time when gasoline supply was tight and the world was still freaking out about peak oil. The speculation about the change was driven by a Bloomberg article that said the head of the Renewable Fuels Administration, Bob Dinneen, and billionaire investor Carl Icahn, had been told by a member of Trump's administration that Trump intended to sign an executive order shifting the point of obligation for blending biofuels away from refiners. That was later denied by the Whitehouse, but not before it caused a break in crude futures and a big run-up in grain and ethanol futures.
Bloomberg News started the RIN-Sanity when they reported that, “Billionaire investor Carl Icahn and the leading U.S. biofuel trade group provided a deal to the Trump administration for revamping the Renewable Fuel Standard that would give both parties a long-sought change to the regulation, per people familiar with the agreement.” The Head of the Renewable Fuels Administration, Bob Dinneen, said he had been told by a member of President Donald Trump's administration that Trump intended to sign an executive order shifting the point of obligation for blending biofuels away from refiners. Icahn owns a small refiner, CRV Energy, that wants to, “shift the burden for complying with the biofuel quotas from refiners to fuel blenders” thereby allowing the ones that put the additives into the reformulated blending stock to be accountable because small refiners who have been forced to by RIN credits at exorbitant prices put them at the mercy of larger refiners that have extra credits.
The problem is the story was not as true as much as Carl Icahn hoped it was. In fact, it may take an act of Congress and not an executive order to change the mandate that is in the hands of the EPA. Reuters reported the White House denial that said there was no executive order on ethanol in the works. When the denial came through, oil and gasoline futures came back and RIN credits that plunged, rebounded. Still, for grains the news may have helped put in a seasonal bottom for the complex and RBOB futures should bottom as well as we get geared up for another record driving season.
In fact, it was confirmed yesterday that U.S. demand for gasoline hit record levels last year, averaging 9.326 million barrels per day, surpassing 2007 levels, according the Energy Information Administration. The EIA said that U.S. drivers drove a record 3.22 trillion miles on U.S. roads last year, a 2.8% rise from 2015 and the fifth consecutive year of year-over-year increases. U.S. gasoline demand was up 1.8% to 9.3 million barrels per day in December versus last year. Total oil demand in December was up 1.9% to 19.98 million bpd, EIA data showed. Total oil demand was at its highest level last year since 2007, EIA data showed.
Some are looking for a drop off in demand due to recent weak figures but last year we saw a dip in demand for this time of year, but demand overall came back like a vengeance. With consumer confidence soaring, we should see a major rebound in gas demand in the coming weeks.
Today, we will get the EIA report on weekly supply. The American Petroleum Institute reported a slightly bearish 2.5-million-barrel increase over all and a 544,00-barrel increase in Cushing, Okla. Still, the product side of the market was supportive with a slightly friendly 1.84-million-barrel increase in gasoline and an outright bullish 3.73-million-barrel drop.
Still, what the traders will be focusing on more than overall numbers will be U.S. oil exports that should hit another record this week and U.S. oil production that finally hit 9 million barrels a day last week but still lags last year’s production rate. We will also look at U.S. oil imports to see if we see a drop from OPEC again this week. OPEC compliance is at 94%! It is not about where inventories are right now but where the market thinks they will be when refiners come out of maintenance.
Natural gas prices are trying to bottom as nuke plants are expected to go into heavy maintenance. Warm temps are offsetting the fact that U.S. production gains may be lost but the market is having a hard time caring as record warmth is making the underlying structural shortage.