Gas Prices Resume Rise As RBOB Hits 2013 Highs

Tyler Durden's picture

The meme of the moment appears to be that sliding gas prices (which by the way merely fell back to mid-February levels) will no longer hamper the over-taxed and under-incomed consumer providing yet more upsided-ness for stocks. Sorry to burst another fictional bubble but Gas prices have now risen for the 3rd day in a row as RBOB (wholesale gas prices) surge to new 2013 highs and crude oil prices push back to one-month highs. Perhaps that is why today's retail sales data (unadjusted) is not providing the pop that so many talking-heads believe is warranted. Between RBOB highs and the RIN issues, is it any wonder the CME just hiked 'crack spread' margins in an effort to keep prices under control?

RBOB (wholesale) and Crude energy costs are re-surging and retail gas prices are on the rise once again (as they always lag)...

And while the CME hiked crack spread margins pushing down the price of RINs in the last week or so, they remain incredibly high...

From last week...

RBOB is up today because of RIN cost. They are currently adding almost 11 usc/gal to imported gasoline, last year was only about .01/gal. The additional savings that use ethanol if there ever was one is now completely gone due to the RFS manadate.

'RINSANITY' SEES ETHANOL RINS HIT $1/GAL; MAY BE IMPACTING NYMEX RBOB
Friday, March 08, 2013 11:19:47 AM

 

Ethanol RINs hit a value of $1/gal Friday morning up 93cts/gal so far this year and more than twenty times the value seen less than six months ago. Biodiesel RINs aren't exactly slouching either. Those RINs hit $1.06/gal in early trading with no end to the viral surge in sight. It now appears as though the soaring RINs values may be impacting NYMEX futures action as well.

 

The surge in RINs -- Renewable Identification Numbers necessary to balance out any deficit in achieving Environmental Protection Agency obligations for the Renewable Fuel Standard -- has been ongoing all year but a particularly frenetic pace has been witnessed this week.

Ethanol RINs began the week just above 50cts/gal but fears about a shortfall and the consequences of hitting a blend wall have sent sellers to the sidelines and put buyers (refiners and importers) in a pinch. RINs were worth just 7cts/gal on the first business day of 2013. RBOB futures this morning advanced as much as 5cts/gal and there is some suggestion that the high cost of RINs has inflated the NYMEX numbers. Obligated parties for RINs are limited to refiners and importers.

 

When a company takes title to RBOB through the NYMEX futures' delivery mechanism they do so without incurring the RINs obligation notes consultant Andy Lipow. An importer can get gasoline via the NYMEX at a 10cts/gal discount to the offshore price in other words since they do not incur the RINs obligation. This may become particularly topical if refinery margins narrow.

An East Coast refiner selling gasoline at 20cts/gal above crude and operational costs might turn to the NYMEX (or domestic spot market) for barrels rather than produce the fuel and face a 10cts/gal margin reduction because of RINs costs. Right now that is more hypothetical than actual since many refiners are seeing gasoline cracks that are $10/bbl or more above crude costs. But for importers the calculus already delivers a huge disadvantage for anyone looking to bring in foreign gasoline. In a sense gasoline "crack" spreads -- as measured by spot indices and futures markets -- have lost some of their relevance.

A Gulf Coast refiner found CBOB prices this morning of about $2.87/gal or about $120.50/bbl. On the surface that reflected a reasonable $7/bbl crack over the price of Light Louisiana Sweet crude a key Gulf Coast benchmark. But when adjusted for the 10cts/gal RINs cost a merchant refiner without downstream racks or blending privileges instead would receive about $2.77/gal for the gasoline or about $116.30/bbl. That puts the hypothetical crack at less than $4/bbl.

Downstream marketers and blenders meanwhile continue to reap some windfalls or perhaps more appropriately "RINfalls" as the credit prices soar. The RINs value for a jobber blending 1-million gal of E10 (and 100000 gal of ethanol) in 2012 might have been $5000 based on an average RINs price of 5cts/gal. The hypothetical value implied by current numbers for that same volume in 2013 at $1/gal per RIN is now $100000.

(h/t Tom Kloza)