Energy Weekly Report - 2023 11 20

• Remarkably, the RINs market has witnessed considerable volatility in recent months, largely reflecting the lower costs of soybean oil and the increased production of renewable diesel.
• One of the main effects of the increased supply of soybean is a reduction in BO-HO margins, which results in lower RIN prices.
• Furthermore, the US production capacity for renewable diesel in 2023 is expected to surpass biodiesel production capacity for the first time.

One reason is the expectation of record soybean oil production in Brazil's current crop (2023/24). The greater availability of the product results in downward pressure on its prices, as shown in the chart above. Another reason is that heating oil prices have fallen with less intensity, reflecting lower stocks in the United States and the resilience of its economy.

Meanwhile, palm oil, a substitute for soybean oil, also experiences higher supply in the market, offering little support for the appreciation of soybean oil. Therefore, in the coming weeks, if heating oil remains resilient, possibly reflecting OPEC measures, there is likely to be a further reduction of the BO-HO spread.

The United States has made significant developments in its renewable diesel sector. In 2023, according to the Energy Information Administration (EIA), the country's production capacity for renewable diesel and other biofuels reached 3 billion gallons per year, surpassing biodiesel production capacity for the first time.

On one hand, this is a significant step in the energy transition. On the other, the production of renewable diesel has also been one of the reasons behind the sharp increase in RINs in the market, as renewable diesel generates 13% more RINs than biodiesel per blended gallon.

It is important to note that the energy complex has faced great volatility. In recent weeks, the cost of oil has dropped significantly, which is a primary expense in middle distillates production such as heating oil.

Strong economic data from the American economy and its low middle distillates inventories keep the market expectations bullish for this refined product. However, a revision of these expectations is possible, especially with growing concerns about China's energy consumption and a potential recession in Europe.

Thus, if there is a decline in heating oil prices, there may be an increase in the BO-HO relationship, which would have a bullish impact on the RINs market. In this context, the repercussions of OPEC's actions, which may be announced on November 26th, will be crucial in determining the price action of petroleum refined products in the coming months.