By Charles Abbott
WASHINGTON, Sept 24 The head of the Senate
Agriculture Committee asked the regulator of U.S. futures
markets on Tuesday to probe whether traders manipulated the
price of biofuel credits that soared over the summer and were
blamed for raising gasoline prices.
In a letter to the Commodity Futures Trading Commission,
Chairwoman Debbie Stabenow said she was concerned about
"possible manipulation of the markets for Renewable
Identification Numbers," the formal name for RINs.
Petroleum fuel blenders can buy RINs, from other refiners or
from third parties who acquired RINs, to satisfy their
obligations under U.S. law to use a certain amount of biofuels.
A RIN is assigned to each gallon of biofuel produced.
The U.S. Environmental Protection Agency oversees the
Prices of RINs have been high and volatile for months -
soaring from a few cents each in January to almost $1.50 in July
to about 50-70 cents this month - in the face of stagnant demand
for gasoline and U.S. law that dictates the rising volumes of
"I would like the CFTC to help determine whether factors
other than supply and demand have been causing extraordinary
volatility in the price of RINs and to what extent fraud and
manipulation have been affecting the price of RINs," Stabenow
wrote in a letter to CFTC chairman Gary Gensler.
"I am concerned that a lack of transparency in these markets
has made them more susceptible to manipulation. If this is the
case, it is a problem that must be identified and fixed."
The CFTC had no immediate comment.
The refiner Tesoro Corp blamed RIN volatility on the
"blend wall," the limit of how many gallons of renewable fuel,
mostly corn-based ethanol, can be blended into gasoline at the
standard blend rate of 10 percent biofuel.
"This is like asking to investigate what the horse did after
it escaped from the barn instead on focusing on how the horse
escaped in the first place," said Stephen Brown, vice president
of government affairs for Tesoro.
"Why chase the symptom when you could focus on the disease
itself - in this case, the blend wall," said Brown.
U.S. refiners such as Valero and Marathon Petroleum
will pay an estimated $1.8 billion for RINs this year,
six times their outlays in 2012.
Wall Street banks, including JPMorgan, have traded
large volumes of RINS, the New York Times said in a Sept. 14
article that tied the trading to rising RIN prices. JPMorgan
said it holds only a "marginal" amount of RINs so it can meet
its own obligations in the fuel market.
The New York Times quoted a CFTC economist as saying the
agency was tracking bank involvement in the RIN market.
A CFTC commissioner, Bart Chilton, told the Des Moines
Register last week, "I see no reason for the spikes and we are
examining" RIN volatility, but said the commission has not
launched an investigation.
The EPA is considering whether to adjust the federal
biofuels mandate for 2014 because the gasoline market is
becoming saturated with fuel at the 10 percent blend rate. The
proposal is under White House review.
Stabenow sent the letter to CFTC under her own signature,
but at least two other members of the Agriculture Committee have
expressed concern about the RIN market.
The committee is partway through a reauthorization of CFTC,
as required every few years, and Stabenow asked if there were
undue limits on CFTC "power, expertise or resources that could
inhibit it from monitoring these markets."
At current RIN prices and given the billions of credits
needed, it could be cheaper to install more gasoline pumps that
dispense a blend of fuel with more ethanol than to buy RINs,
economist Bruce Babcock of Iowa State University said in a
report this month.
Babcock said ethanol sales would rise by as much as 1
billion gallons for every 2,500 fuel stations equipped with
pumps selling E85, or 85 percent ethanol.
E85 is typically used by cars and light trucks known as
flexible-fuel vehicles. About 2.5 million FFVs were sold in the
United States in 2012, according to the Renewable Fuels
Association. Only about 2 percent of U.S. retail gas stations
carry E85, concentrated in states with ethanol refineries.