Understanding RIN Price Fundamentals

It has been proven the pricing of D4 RINs follows basic economic and asset pricing theory. In 2020, the theory was cast in the form of a mathematical model by professors from the The University of Illinois and Harvard University. Hoekstra Trading implemented their model, which I call the IMS model (IMS is an acronym of the author’s names), in a spreadsheet which also contains a full database of actual RIN trades since 2009.

The black price series is the IMS model, calculated for a D4 RIN with one year remaining until its expiration. The data points are actual trades of 2020-vintage D4 (green) and D6 (blue) RINs. The model predicts the trend in recent prices well. Notice that during the second and third quarters of 2020, the (black) predicted price was generally higher than the (green) actual D4 price. This probably reflects delayed response of actual trades to changing fundamentals, that is, the model foreshadowed the coming RIN price increase.

The theory applied in the mathematical model is not directly applicable to D6 prices. But the gap between the (green) D4 and (blue) D6 data has a fundamental meaning that can be assessed by a knowledgeable trader to derive a well-informed estimate of the D6 value.

Having now studied the entire history of RIN prices in detail, I find the success of this theory remarkable. Understanding it gives anyone with a stake in the RINs market a big competitive advantage. With our spreadsheet, you can study and understand the true causes of RIN price changes since 2010. You will understand the true economic value of a RIN better than your competitors, anticipate future price changes and improve the profit impact of your RINs trading strategy.

Recommendation

Anyone with a stake in RINs pricing and economics should get Hoekstra Research Report 10 which includes the Hoekstra ATTRACTOR spreadsheet spreadsheet that accurately calculates D4T, the theoretical RIN price, tracks it versus quoted market prices, and predicts how RIN prices will change with the variables that affect them. Why not send a purchase order today?

George Hoekstra [email protected] +1 630 330-8159

Anyone with a stake in RINs pricing and economics should get Hoekstra Research Report 10