The Trump Administration announced today a pending executive order that will change the refined products industry. The order will shift the responsibility of blending biofuels from the refineries to position holders at the petroleum terminals. This news has caused refined products and Renewable Identification Numbers (RINs) to trade lower on the day. April RBOB is down $0.0535 to $1.6882, ULSD is down $0.0408 to $1.6075, and RINs trade down by 35%.
The Renewable Fuel Standard is an EPA regulation that is designed to subsidize the biofuel industry, requiring biofuels to be mixed in with both gasoline and diesel products. Currently, oil refiners are required to blend these biofuels into their products before they ship them on pipelines to the petroleum terminals where we pick up fuel and deliver to our end-user customers. If refiners don’t have the infrastructure to blend in the biofuels, they must purchase RINs in order to be compliant with the regulation. Since refiners are the majority purchasers of RINs, traders are dumping them on today’s news which is causing the RINs market to be down 35% with all the uncertainty regarding its future.
What this executive order would do in theory is require the fuel retailers to blend biofuels into the gasoline and diesel. This will allow refineries to reduce costs, by not worrying about the biofuel requirement, and thus allow them to pump out more refined products. Albeit, this comes at a time when we have extraordinary high stocks of refined products. Gasoline stocks stand at almost 28.5 million barrels, a record high, and diesel stocks stand at 17 million barrels, a record high as well. Therefore, we could see a sustained glut of refined products if demand does not pick up. However, SIGMA reported earlier today that the President does not have the legal authority to make this executive order happen; it would require further rulemaking by the EPA. Stay tuned!