U.S. biofuels credit prices whipsaw after surprise Trump victory

Source: By Chris Prentice, Reuters • Posted: Thursday, November 10, 2016

The niche market for paper credits to comply with the U.S. biofuels program jerked lower on Wednesday in response to the surprise presidential victory of Republican Donald Trump, perceived to be favorable to oil companies.

A Trump administration could signify change for the country’s controversial Renewable Fuel Standard (RFS), the more than decade-old policy that’s been a bedrock of two presidential administrations. Though he expressed support for ethanol along the campaign trail, the Republican is seen as being heavily in favor of fossil fuels and reduced regulation.

In early trade on Wednesday, prices of renewable fuel credits Renewable Identification Number (RIN) credits (D6) fell as low as 77 cents in early trade from Tuesday’s last levels around 83.25 cents apiece. They then recovered alongside other markets, trading up to 83 cents. Biodiesel (D4) RINs also dropped.

The credits are used by oil refiners and gasoline importers to prove they are meeting government mandates for gallons of biofuels required to be blended with gasoline and diesel. Companies can either generate them by using the renewable fuels or buy the RINs in an opaque market.

“Trump is a pro-fossil fuel candidate, and in that context, he’s likely to make decisions that support those groups,” Timothy Cheung, vice president at ClearView Energy Partners in Washington, said in a phone interview.

In particular, Trump is considered sympathetic to so-called merchant oil refiners that have complained about the rising cost of the compliance credits and its impact on their bottom lines at a time of weak oil prices.

Those refiners, including Valero Energy Corp and CVR Energy Inc, have been pressing environmental regulators to change the program and address a RIN market they see as unfair. [nL2N1BR1U1]

The prices of Valero, CVR and Hollyfrontier Corp shares all jumped more than 3 percent on Wednesday, while biofuels producers, including Green Plains Inc, Archer Daniels Midland and Pacific Ethanol Inc, saw their shares’ prices drop.

In the credit market, RINs recovered alongside equities and other commodities as some investor shock dissipated. Further, Trump’s energy plans remain unclear and he received support during Tuesday’s votes across the country’s farm belt, including key corn and ethanol states like Iowa.

Any impact from Trump’s entrance into office would be deferred at least into 2018, as the current administration is due to release its final requirements for biofuels use next year before the end of the month.

(Reporting by Chris Prentice; Editing by Jonathan Oatis)