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CHICAGO -- Prices for cellulosic biofuel D3 Renewable Identification Number (RIN) credits will likely rebound as the market rebalances and policy decisions are made in the coming months, Iogen Executive VP of Advanced Biofuels Pat Foody predicted on Tuesday.

Speaking as part of a panel discussion at the 11th annual OPIS RFS2, RINs & Biodiesel Forum here, Foody pointed out that the current D3 RINs prices reflect an expectation of a perpetual imbalance in supply and demand, with impatient sellers likely driving down prices while patient buyers are benefiting.

"Political changes and EPA administrative actions are certainly having a dramatic impact on the RIN market," Foody said. "These are the primary risk factors for market participants."

D3 RINs prices have tumbled from $2.18/RIN a year ago to an OPIS assessment of just 76cts/RIN on Tuesday.

Foody said that while policy uncertainty is an important variable in predicting RINs prices, forecasting RINs still functions on a traditional balance of supply and demand fundamentals. On the supply curve, Foody said RINs prices are driven by the cost of producing the next gallon of biofuel, including what factors determine the incremental gallon and what drives the cost.

On the demand side, prices are driven by the cost to add the next gallon of fuel, including the cost of incremental distribution capacity and what drives the cost.

Those incremental gallons are heavily impacted by policy tweaks at the federal level, Foody said.

For example, on the biomass-based diesel D4 RINs, Foody said the market appears to be currently pricing the biomass-based diesel blenders tax credit for 2019 around 60%. Foody said with a consistent expectation, RINs prices should reflect the BTC value, which Foody set at 67cts/RIN.

Based on futures markets for soybean oil and crude oil, the expected D4 RIN prices without the BTC is 70-90cts, while if the BTC is locked in, the expected price would be more like 5-25cts/RIN. The expected trade range, given strong volatility in the market, could range from 25cts/RIN to $1.40/RIN with no BTC, Foody said.

On the ethanol-related D6 RINs prices, the U.S. capacity for ethanol in E10 remains an important function of the RFS and pricing. Depending on how many marginal gallons E85 can add to the pool, D6 RINs prices could trade in a range of near-zero to as high as 65cts/RIN, Foody said.

On D6 RINs, Foody said the Renewable Volume Obligations (RVOs) could potentially push ethanol use beyond the blend wall. The major questions that will need to be answered, however, include whether or not EPA's small-refinery exemptions (SREs) will continue to be granted without reallocation, how EPA's reset rule might affect the RFS, whether or not tensions between Big Oil and Big Ag can be resolved as well as how a potentially different administration might change the landscape in 2021 and beyond.

"People thought the market was going to be short, and then the SREs came out and the market went, 'Oh my, God, we're going to be long," Foody said. "The market just collapsed."

Foody also warned that his pricing forecasts are meant for long-term investment decisions rather than short-term spot trading decisions.

--Jordan Godwin, jgodwin@opisnet.com



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