OREANDA-NEWS. The recent transition to summer fuel blends has seen ethanol's premium to gasoline erode by as much as 85pc in less than two weeks, increasing the competitiveness of the biofuel and putting downward pressure on RINs.

Prices for RINs — credits used to encourage the blending of biofuels into the US on-road transportation fuel pool — have been in steady decline since 25 February, led by ethanol D6 RINs, which have lost more than 5? since topping at over 76?/RIN in late-February. Losses for biomass-based diesel and advanced RINs were less dramatic at 4.5? and 3.25?/RIN, respectively.

While market constructs and blend mandates underpin most of the biofuel blending in the US, high RIN prices — or alternatively low biofuel prices — can also encourage a degree of discretionary blending.

Since the start of the transition from winter fuels to summer grades in late-February, ethanol's premium to spot gasoline has declined by between 17?-72?/USG across the US, reaching the lowest levels since mid-January, when D6 prices were around 67.5?/RIN. In mid-August, the last time US ethanol prices held discounts to the gasoline they replaced, current year D6 RIN prices were just 39?/RIN.

The selling has in turn brought a host of market players in off the sidelines, many of whom believe that RINs markets are due for a downward correction and that fundamentals do not support current prices. The start of March has seen a succession of high-volume trade days amid improved liquidity and large-volume roll activity.

Barring a bullish announcement on proposed 2017 mandates, the inverse correlation between the ethanol/RBOB spread and D6 RIN prices will likely drive RIN markets even lower in the coming months as lower Reid vapor pressure (RVP) requirements boost gasoline prices. The current ethanol oversupply also shows little signs of abating, keeping downward pressure on prices.

At the moment, US ethanol producers are supported by export demand. Brazilian demand seems to have been satiated, however, and that country will soon emerge from its inter-crop period, pulling a key buyer out of the market. Should the rug be pulled out from under US ethanol producers from a slow export month, ethanol's premium to gasoline may erode further, pulling RINs down in turn.

The US Gulf coast shifts to a 9.0 RVP tomorrow and the New York Harbor market will see shifts to 9.0 and 7.8 RVP on 15 March.