Insight: Lord of the RINs? Vitol's ethanol credit bonanza

Thu Nov 7, 2013 1:20am EST
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By Cezary Podkul

NEW YORK (Reuters) - Swiss trading company Vitol SA is among the biggest beneficiaries of an opaque U.S.-government-mandated trading scheme established to help boost the share of ethanol in the nation's fuel supply, market sources say.

As refiners scrambled this year to meet an expected steep rise in the amount of ethanol that must be blended into gasoline, trading in little-known credits used to enforce the quotas turned white-knuckled. RINs, or renewable identification numbers, have traded for years in a niche market for pennies apiece. In mid-July they soared to nearly $1.45 from about 5 cents last December, providing huge opportunities for oil traders and others in the market.

Oil refiners such as PBF Energy Inc (PBF.N: Quote) railed against the rally, blaming it on a flawed renewable fuels program and rampant speculation. They said meeting next year's ethanol blending quota was impossible because they couldn't sell fuel with more than 10 percent ethanol without risking damage to car engines or breaching warranties. This caused the surge in demand for RINs. Refiners vowed to pass on nearly $2 billion in costs to consumers through higher gasoline prices.

The winners have been less vocal, but brokers and traders active in the loosely regulated market say that privately held Vitol, the world's largest trader of oil, appears to have done especially well. That view is based on outside observations of how the company traded in the over-the-counter market, as well as its decade-long effort to build an unrivalled network of U.S. ethanol blending terminals and overseas suppliers that gave it a prime place in the RINs market.

Seven sources, including those at three major brokerages who do direct business with Vitol, said it was a big buyer of RINs early in the year before prices spiked. Several also said its Houston-based trading team was a prominent seller as prices climbed.

"They're the success story of it all," said one source who trades with Vitol. Other market participants confirmed that the company was among the largest traders they saw in the RINs market, despite its owning no U.S. refineries or fuel stations. They said they didn't know if it had made money.

Vitol Chief Executive Ian Taylor, speaking at the Reuters Commodities Summit this week, said RINs were a "notoriously difficult animal.

"I wouldn't say we got it particularly brilliantly right or anything like that. You make an assessment of how many RINs are available in the market … and what the demand is going to be. What you get right in 2013 you might have got wrong in 2012 or for 2014."   Continued...

President and Chief Executive of Vitol Group Ian Taylor participates in a question and answer session during the Oil & Money conference in London in this October 1, 2013 file photo. REUTERS/Luke MacGregor/Files