Here’s how to reduce RIN costs by 25%

On December 14, 2021, Hoekstra Trading notified our clients of a RIN credit spread trading opportunity which is indicated by the gap between the dark green and light green data points on the right side of this chart:

Figure 1 Chart from Hoekstra IMS RIN price model spreadsheet

The opportunity was to sell the 2021 (light green) D4 RIN and buy the 2022 (dark green) D4 RIN for a credit of 25 to 40 cents per RIN. This was a riskless arbitrage trade for refiners with outstanding 2021 RIN obligations.

RIN price fundamentals said there was no good reason for the big price gap between the dark and light green points. We also had a good theory why the gap was there, and a simple way to exploit it.

Figure 2 shows the data updated to today. The gap between the light and dark green points indeed closed as we predicted, to around six cents today.

Figure 2 Chart from Hoekstra IMS RIN price model spreadsheet

The trade was done by selling 2021 D4 RINs and buying 2022 D4 RINs for a 25-40 cent credit. The obligated party then carried forward a deficit on 2021 RIN obligations which was covered instead by the much cheaper 2022 RINs, lowering 2021 RIN cost by 25-40 cents per RIN. Leaving a deficit on RIN obligations can be done up to a limit. Our theory was that fact was not widely appreciated, hence the 2021 RINs were over-priced and 2022 RINs under-priced compared to their true values. This disparity remained available several months for astute refiners to exploit.

Conclusion

This shows how Hoekstra Trading’s spreadsheet application of the Irwin-McCormack-Stock (IMS) RIN price model helps RIN buyers and sellers analyze RIN price dynamics, theoretical vs. actual, to find and exploit opportunities and accurately anticipate how RIN prices will respond to changes in fuel prices, regulations, and fuel price volatility.

Hoekstra Research Report 10

includes our RINs pricing spreadsheet that applies the IMS model to calculate RIN prices for any set of inputs, plus a full history of RIN prices, a summary of key events in RINs history, a full explanation of RIN pricing and pass-through theory and related empirical studies, a set of attachments that will make you an expert on RIN pricing, plus a period of unlimited support by phone and E-mail. It is available immediately to anyone at negligible cost. See our offer letter and contact me, or (better), just send a purchase order today.

George Hoekstra

george.hoekstra@hoekstratrading.com

+1 630 330-8159

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