1. Potentially big news on the #RFSwars. Bloomberg reporting that Trump Admin is going to apply 10th Circuit ruling on #SREs nationwide. bloomberg.com/news/articles/…
2. Political blowback from refining country will be severe. We will see if Trump Admin caves somehow. However, what alternative does the Trump EPA really have now? Legally, the ruling really boxed in the EPA. Pretty hard not to apply the ruling nationwide.
3. So, now let the wailing and gnashing of teeth about RIN costs begin once again. Oh my. Small refineries are going to go our of business right and left as a result. Wrong.
4. Two things to remember here. First, the level of RIN costs is being held down by the biodiesel tax credit (BTC). Today, D4 biodiesel RINs are trading around 50cents per gallon, far below historically peaks. Thank you BTC!
5. Second, regardless of the level of RIN prices, available evidence shows that refiners pass the RIN cost down the line in the form of wider crack spreads. This makes complete economic sense. I have not seen any compelling evidence that merchant refiners are hurt by RIN costs
6. This is a much less discussed part of the 10th circuit ruling. The court said that SRE petitions must now consider passthrough of RIN costs. So, even if the extension part of the ruling is later over-ruled this stands as a major hurdle to future SREs.
7. I'm gonna be a broken record here. My challenge to merchant refiners. One chart. Show me a plot with operating profit on one axis and RIN costs on the other. Bet there is no relationship. But I have an open mind if the data shows otherwise.
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