Marathon Petroleum Nears A 52-Week High As RIN Prices Collapse

Tristan R. Brown profile picture
Tristan R. Brown
2.39K Followers

Summary

  • Marathon Petroleum's share price has rebounded over the last several weeks as the RIN market has signaled a higher likelihood of major changes being made to the biofuels mandate.
  • The refiner incurred total RIN expenditures last year of $457 million, well above the amounts that it recorded in previous years.
  • Current RIN prices have caused the company's expected expenditures in 2018 to fall substantially, although continued turmoil in Washington D.C. makes such an outcome far from probable.

The share price of refiner Marathon Petroleum (NYSE:MPC) neared a 52-week high last week (see figure) as the revised Renewable Fuel Standard [RFS2] came under renewed attack in Washington D.C. The company's management has been an active participant in the lobbying effort to overhaul the biofuels blending mandate due to the large Renewable Identification Number [RIN] expenditures that it has incurred over the years. Last week's news that the U.S. Environmental Protection Agency [EPA], which oversees the implementation of the mandate, is awarding "hardship exemptions" to a number of merchant refiners that could ultimately reduce their blending obligations has led to a sharp RIN price decline, resulting in reduced RIN expenditure expectations for Marathon Petroleum in 2018.

ChartMPC data by YCharts

While 2017 was characterized by a large amount of RIN price volatility even by historical standards (see figure), the average weighted price across the four major price categories was only slightly lower at $0.81 than the previous year's value of $0.85. Between a higher overall blending volume (the total national biofuel volumes that must be blended steadily escalate on an annual basis through 2022) and the company's own need to purchase RINs to make up for its lack of internal blending, Marathon Petroleum's total expenditure amount in 2017 soared to $457 million, or a sizable fraction of its net income of $3.4 billion, from $288 million the previous year. Its annual RIN expenditures, as reported in its 10-K filings, have more than doubled since 2015 and tripled since 2014. Assuming that the company made steady purchases throughout the year to satisfy its deficit (merchant refiners are required to submit a specific number of RINs in proportion to their market share to the EPA every year), then it acquired around 564 million RINs (weighted basis) last year.

Source: EcoEngineers (2018)

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Tristan R. Brown profile picture
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