Bank of America Says Ethanol RINs Boost Gasoline Crack Spreads

The value of Renewable Identification Numbers, or RINs, for ethanol in the U.S. is boosting the gasoline-Brent crude crack spread, Bank of America Corp. analysts said in a report.

The crack spread has more than tripled this year to $14.88 dollars and is at seasonal highs in part because the value of RINs has surged to 90 cents from 7 cents on Jan. 1, according to the report.

“RINs prices have skyrocketed more than tenfold since the start of the year due to concerns of shortages,” Shin Kim, Sabine Schels and Francisco Blanch wrote in the report.

Each gallon of ethanol is assigned a tracking certificate to show compliance with a government mandate, known as the Renewable Fuels Standard, to blend 13.8 billion gallons of the biofuel into gasoline this year and 14.4 billion in 2014.

Corn-based ethanol RINs fell 3 cents to 90 cents yesterday while advanced RINs, which cover Brazilian sugarcane-based ethanol and biodiesel, slumped 2.5 cents to 97 cents, data compiled by Bloomberg show.

Ethanol production fell last year for the first time since 1996, according to the Renewable Fuels Association, as plants across the U.S. Midwest tempered output in the face of unprofitable returns because of record corn prices after the worst drought since the 1930s.

Ethanol Mandate

“More importantly, the U.S. is nearing the point where more ethanol use is being mandated than can be physically blended into gasoline, otherwise known as the blend wall,” the analysts wrote.

Ethanol is blended with the motor fuel in increments of as much as 10 percent. While the U.S. Environmental Protection Agency has approved concentrations of as much as 15 percent in gasoline, petroleum industry advocates have said that more testing is needed.

“Currently, there is a physical limit to ethanol consumption, given the prevalence of E-10 gasoline,” they wrote. “At the same time, RFS volume blending requirements were originally based on overly optimistic gasoline consumption estimates.”

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