UPDATE 1-US senator asks CFTC to look into biofuel credit pricing
WASHINGTON, Sept 24 (Reuters) - The head of the Senate Agriculture Committee asked the regulator of the U.S. futures markets on Tuesday to probe whether traders have 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 the possible manipulation of the markets for Renewable Identification Numbers," the formal name for RINs. Petroleum fuel blenders can buy RINs in order to satisfy their obligations under U.S. law to use biofuels if they do not blend the fuels into gasoline.
Prices of RINs have been high and volatile for months in the face of U.S. law to use rising volumes of renewable fuels and stagnant demand for gasoline. The standard blend rate for gasoline is 10 percent biofuels, mostly corn-based ethanol.
RINs prices soared from a few cents in January to almost $1.50 in July before falling to around 50 to 70 cents this month.
"Specifically, 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," wrote Stabenow 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.
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. 15 article that said the trading helped drive up RIN prices. JPMorgan said it holds only a "marginal" amount of RINs so it can meets its own obligations in the fuel market.
The Environmental Protection Agency is considering whether to adjust the federal biofuels mandate because the gasoline market is becoming saturated with fuel at the 10 percent blend rate. The proposal is under White House review.
With RINs costing from 60 cents to 70 cents a gallon and billions of credits needed, it could be cheaper to install more pumps that dispense a high blend of ethanol than to buy RINs, said economist Bruce Babcock of Iowa State University 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.