Icahn’s oil refiner CVR starts unwinding biofuels bet

Source: By Jarrett Renshaw, Chris Prentice, Reuters • Posted: Thursday, September 21, 2017

NEW YORK (Reuters) – Carl Icahn’s refining company CVR Energy (CVI.N) has begun buying biofuel credits for the first time in months, a sign the firm is starting to unwind a massive short position in the niche market, according to two sources familiar with the matter.

The company has purchased millions of the credits, known as Renewable Identification Numbers, or RINs, since late August, the sources said. But it will need to buy millions more to meet its obligations under the U.S. Renewable Fuel Standard.

“They seem to come in for clips – half a million or a million at a time. Very normal activity,” said one of the sources, a trader who had also been buying the credits in the marketplace and who asked not to be named.

The company has spread the purchases among different brokers, a second source said, a strategy that will help keep it from attracting sellers looking to bid up the price.

The sources did not say how much CVR purchased or at what price. Some details of its purchases may be revealed when the company discloses its quarterly earnings next month.

A CVR spokeswoman declined to comment. Counsel for Carl Icahn did not respond to a request for comment.

The U.S. Renewable Fuel Standard requires oil refiners to blend increasing volumes of ethanol and other biofuels into gasoline and diesel every year, or to purchase credits from competitors that blend it instead.

The regulation also allows refiners to delay their RIN purchases for up to a year, an option that can be attractive to a company that thinks prices will fall.

CVR, in which Icahn owns a majority stake, delayed buying credits for much of the past year in hopes prices would come down, building up a company-record $280 million outstanding obligation by the end of June, according to a Reuters review of company filings.

The move came as Icahn pressured the Trump administration, as an unpaid adviser to President Donald Trump, to revamp U.S. biofuels policy in a way that shifts the blending burden off refiners like CVR further down the supply chain to terminals.

That would have crushed the price of RINs and saved merchant refiners like CVR, Valero Energy Corp (VLO.N) and others hundreds of millions of dollars a year.


Environmental regulators are preparing to reject the request, however, according to administration sources. Icahn recently resigned his post amid growing concern over his dual role as adviser and investor.

CVR’s huge RIN bill comes due in March 2018, which means it has to cover roughly two years of RIN obligations in a span of nine months to meet the federal regulation.

It’s a “high stakes RINs strategy,” Barclays analyst Paul Cheng wrote in an August research note, pointing out its purchases could drive up RIN prices. The outstanding cost could be worth $430 million by year-end, Cheng warned.

RIN prices climbed to a year-to-date high of 92 cents each last month, well off their near-18-month low of 33 cents that was driven by expectations Icahn’s efforts in Washington would yielding results.

Political uncertainty could continue to keep prices high, said Harvard University professor and former Obama administration adviser James Stock. For one thing, traders are awaiting decisions from Washington on whether to impose duties on imported fuel from Argentina and Indonesia and whether to reinstate a $1-per-gallon tax credit for biodiesel.

“It’s hard to see how (RIN prices) would come down, but you can see a number of reasons why they’d go up,” Stock said.

Editing by Richard Valdmanis and Cynthia Osterman