Bloomberg News

CME Plans to Introduce Ethanol RINs Contract by End of May

April 08, 2013

CME Group Inc. (CME:US), owner of the world’s largest futures exchange, plans to start a contract for ethanol Renewable Identification Numbers by the end of May amid concern that higher RINs costs will boost gasoline prices.

The exchange is introducing the contract as the certificates have attracted more attention, Damon Leavell, a CME spokesman in New York, said in a telephone interview today. Prices rose to a record last month.

Lawmakers have called for investigations into the volatility of the RINs, certificates attached to each gallon of biofuel that refiners need to show compliance with federal mandates. Petroleum and ethanol industry representatives have argued over the effect of RINs on retail gasoline prices.

“The recent volatility in RIN prices has introduced a whole new set of risk management challenges that the market will need to address,” said Michael Breitenbach, an analyst and trader at Blue Ocean Brokerage LLC in New York.

Corn-based ethanol RINs, or D6, rose 6.3 percent to 75.5 cents on April 5, the highest price since March 15, data compiled by Bloomberg show. Advanced RINs, or D5, which cover biodiesel and Brazilian sugarcane-based ethanol, jumped 5.1 percent to 82 cents, the most since March 18.

Gasoline at the pump, averaged nationwide, has risen 9.1 percent this year to $3.593 a gallon, AAA, the nation’s largest motoring organization, said today on its website.

Renewable Standard

A 2007 energy law, known as the Renewable Fuels Standard, requires the U.S. to use 13.8 billion gallons of ethanol this year and 14.4 billion in 2014.

There are about 2.1 billion RINs that were carried over from 2012 that can be used for compliance this year, short of the Environmental Protection Agency’s forecast of 2.6 billion, Goldman Sachs Group Inc. said in a report today.

Higher prices for the certificates may affect prices for reformulated gasoline, or RBOB, and crack spreads, the premium of the fuel over crude, Goldman said.

“We expect this downward revision to RIN supplies will support D6 RIN prices and, given the likely pass through to gasoline blendstock prices, will support RBOB prices as well as gasoline cracks,” Goldman analysts Damien Courvalin and Jeffrey Currie, wrote in the report.

Congressional Inquiries

Senators David Vitter, a Louisiana Republican, and Lisa Murkowski, an Alaska Republican, sent a March 20 letter asking EPA director nominee Gina McCarthy how she will address the ethanol mandate and the surging RINs prices.

U.S. Senator Ron Wyden, an Oregon Democrat and chairman of the Senate’s Energy and Natural Resources Committee, sent a letter to the EPA on March 22 seeking data to explain the recent volatility in the RIN market.

Ethanol is made mostly from corn in the U.S. One bushel of the grain makes at least 2.75 gallons of the renewable fuel. Production in the week ended March 29 averaged 807,000 barrels a day, or 12.4 billion gallons on an annualized basis, data from the Energy Information Administration show.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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  • CME
    (CME Group Inc/IL)
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