U.S. refiners sell biofuel credits to raise cash as valuations tank

 U.S. refiners sold renewable fuel credits last week in a bid to raise cash as their market capitalizations slumped amid the oil price crash, according to three industry sources.

Refiners are under strain as the coronavirus pandemic has sapped global demand for gasoline and jet fuel, making it unprofitable to produce those products.

Global oil demand is expected to fall by 15% to 20% in coming months, an unprecedented decline that is straining the balance sheets of numerous refiners now facing weaker margins and reduced processing.

Refiners buy renewable fuels credits as part of the nation’s biofuels laws, which require them to either blend biofuels like ethanol into the nation’s gasoline supply, or to buy credits to fund those who can. The industry has blamed this mandate for rising costs and financial difficulty in recent years.

Refiners that sold off credits last week include Monroe Energy, which co-owns a refinery with Delta Airlines in Trainer, Pennsylvania, and Delek US Holdings, which owns refineries in Texas, Louisiana and Arkansas, according to market participants.

Delek US Holdings did not respond to a request for comment, and Monroe Energy declined comment.

U.S. renewable fuel credits RIN-D6-US fell for three sessions straight last week to as low as 12.75 cents each, traders said. They have since rebounded, to trade at 23 cents each this week.

One other factor pushing RIN prices higher this week was the U.S. Environmental Protection Agency’s decision to not appeal a court ruling that is expected to dramatically change refiners’ obligations to blend biofuels into the fuel pool.

Delek US Holdings shares have fallen 56% since the beginning of 2020. In the same period, PBF Energy is down 73%, Par Pacific is down 64%, and Marathon Petroleum is down 48%.

Goldman Sachs noted that given the extent of the demand destruction so far in 2020 and a lower crack spread environment this year than in 2009, Delek’s leverage is elevated.

Delta’s Trainer refinery, which is optimized to produce jet fuel, cut capacity by 40,000 barrels per day earlier this week as the airline announced it was reducing overall flights by 40% due to the coronavirus pandemic. (Reporting by Laura Sanicola; Editing by Tom Brown)

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