Biodiesel RIN prices reach new highs, could be headed higher

By Luke Geiver | February 16, 2011

Biomass-based diesel RIN prices have reached a new high, trading today at $1.20, and some say there is no indication that those prices will drop for the next several months. With the current trading price, combined with the dollar blender’s credit, this brings the amount that can be taken off the price of a gallon up to $2.80. “Basically, what you are seeing is the RIN prices and the tax credit is now worth more than the fuel,” said Sam Gray, a fuel trader with Ft. Worth, Texas-based VICNRG LLC. “We’ve never seen anything like it. Producers have margins, blenders have great margins and RINs are trading briskly. 2011 is going to be a very interesting year for biodiesel.”

According to Gray, the volatility in the market is due to a number of factors. One factor is because the fuel is just not making it to the market in blended form. Because the amount of spot product is currently considered low, required parties are buying RINs on a forward basis to guarantee that they are meeting compliance throughout the year. “They are guaranteeing that they have their piece of the pie before RIN prices go up to a $2.00 with the uncertainty of the tax credit,” Gray said.

Another factor leading to the high RIN prices, Gray noted, is that because the reporting period for 2010 ends on Feb. 28, several parties are buying up all they can to ensure they don’t carry over a deficit into 2011.

While the current RIN prices are trading at more than a dollar based on the efforts by obligated parties to ensure they have a ratable RIN value for the second half of the year, and to ensure there is no deficit carried over into 2011 following 2010, Gray said prices will linger at or above the current value because data showing the market truly is short is not available yet. “After compliance,” he said, “most folks are calling for a small drawback in RIN prices. If the market is short and it stays short, prices will continue to rise.” Once the numbers start coming out from the EPA and RFS2 on their RFS2 numbers, he added, and the EIA and its energy information comes out in the monthly reviews, which is not available yet, “then we will have something other than speculation of short to work on.” Right now, he said, the assumption is the market is short. Pretty soon, the reality, however, will be known.

“In mid March, that is when you could see even more fireworks because if the market is short, there is no reason to reduce the price of the commodity,” he said.

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