US biofuel RINs drop on Russia export ban

The Argus Renewable Volume Obligation (RVO) fell to an 18-month low on Thursday as market participants bearing a RIN obligation reacted bearishly to Russia's ban on gasoline and diesel exports and high levels of RIN generation.

The Argus RVO, a published RINs index that measures the cost of complying with US biofuel blending rules, fell on 21 September to 13.82¢/USG, the lowest since March 2022. Ethanol D6 RIN credits were valued as low as 107¢/RIN in the same session, while biomass-based diesel D4 RINs fell to 107.5¢/RIN.

Unless the export ban is lifted in a timely manner, supply of motor fuels in Europe and Brazil will decrease, potentially increasing demand for US products exports.

US fuel production is subject to a biofuel blending obligation as a part of the Renewable Fuel Standard (RFS), meaning that the total amount of finished gasoline and diesel consumed domestically must contain a certain proportion of renewable fuels like ethanol and biodiesel. To prove compliance with the RFS, obligated parties acquire tradable RIN credits that are then submitted to the EPA.

When conventional fuels are exported, they do not need to be blended with biofuel and have no RIN obligation, while fuels imported to the US bear a RIN obligation. If the Russian export ban diverts more of the global fuel supply to higher demand regions, the resulting reduction in US imports would reduce biofuel blending demand.

Biomass-based diesel D4 RIN credits remain oversupplied relative to the RFS mandate, which has also weighed on the Argus RVO. D4 credit generation in January-August was up by 40pc from the same period last year, accounting for roughly 33pc of total credits generated so far this year compared with 26pc in the first eight months of 2022.

Extended losses and prolonged low values in the soybean oil/heating oil (BOHO) spread also have played a role in the RIN market decline, as soybean oil is a prominent feedstock in the production of biodiesel.

Heating oil, an adjacent conventional product to ultra-low sulfur diesel, is a substitute for soybean oil that becomes a more attractive investment when BOHO increases and less attractive when BOHO decreases. If heating oil prices rise and biodiesel production becomes more competitive, it could lead to even higher D4 RIN generation and exacerbate the oversupply of credits.

By Matthew Cope