NEW YORK (Reuters) - Thirteen U.S. lawmakers on Tuesday urged the derivatives market regulator to examine fraud and manipulation in the cash market for ethanol blending credits known as RINs, as political scrutiny of the market intensifies following an unprecedented 2,900 percent spike in prices earlier this year.
The group sent a letter to Commodity Futures Trading Commission Chairman Gary Gensler asking that his agency “use its expertise and authority in overseeing markets for commodities futures to look into what extent fraud and manipulation have played (a role) in the volatility of RIN prices.”
However, the letter, sent by representatives of ethanol-producing states of Minnesota, Iowa, Illinois, Wisconsin and South Dakota, appeared to stop short of calling for a full-blown investigation into the market for the credits, which surged from 5 cents to almost $1.45 per credit in the first seven months of the year.
“We just were pretty frustrated about the RIN volatility and the lack of transparency and the potential speculation,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association, which helped corral state lawmakers’ signatures for the letter. All four of the state’s representatives signed on.
The request follows a similar letter to the CFTC sent by Senate Agriculture Committee Chairwoman Debbie Stabenow last month, in which she expressed concern about the “possible manipulation” of the market for the credits and asked for the CFTC’s help in determining the cause for the sudden spike.
It is unclear whether the CFTC has opened an inquiry into the RIN market in response to Stabenow’s letter, or even what jurisdiction it has to do so. RINs are mostly traded on a cash over-the-counter basis via instant messages, email or over the phone - a realm outside the CFTC’s purview.
A spokesman for the CFTC declined to comment.
New futures contracts launched earlier this year by exchange operators CME Group and IntercontinentalExchange are within the CFTC’s oversight, however.
The credits are used by refiners and importers to satisfy their obligations to blend biofuels like corn-based ethanol into their fuel supplies under a 2007 law. Each gallon of ethanol they buy for blending comes with a 38-digit renewable identification number, or RIN, which can be used to satisfy the blending obligations or be sold to others who need more of the credits.
Demand for RINs skyrocketed this year as refiners jostled to snap up the credits to satisfy their obligations without crossing a 10 percent ethanol-gasoline mix threshold, which they say can harm the engines of most cars on the road today.
RIN credits for ethanol surged from about 5 cents each to a peak of about $1.45 in mid-July - an increase of some 2,900 percent.
They have since tumbled to around 30 cents amid signs from the U.S. Environmental Protection Agency, which administers the fuel blending rules, that it will lessen ethanol blending volumes in future years to below the 10 percent threshold.
The volatility - which many analysts say was exacerbated by speculation - has the potential to spill over into the gasoline market, where U.S. consumers have already been paying some of the highest gasoline prices on record, according to the American Automobile Association.
Reporting By Cezary Podkul; Editing by Bob Burgdorfer and Ken Wills