阿格斯可再生量义务指数(RVO)主导美国航空燃煤差价

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Houston, 28 July (Argus) — The higher cost of compliance to produce road fuels in the US has become the determining factor of the price of jet fuel relative to Nymex ultra-low sulphur diesel (ULSD) futures.

Jet fuel is exempt from the federal Renewable Fuel Standard (RFS) program, unlike ULSD and its futures contract. This cost of compliance, as measured by the Argus Renewable Volume Obligation (RVO), has increased significantly since this March, and its role in jet fuel prices has grown accordingly. In recent months, pricing physical jet fuel against Nymex ULSD futures has largely evolved into discounting the RVO.

From 1 March to 27 July, the price of RVO and physical US Gulf coast jet fuel's discount to Nymex futures showed a 97pc correlation, a level that did not exist during the same periods in 2020 and 2019, when RVO averaged much lower.

RVO averaged 2.72¢/USG during the same period in 2019, about 26pc of 2021 levels. During the period, the correlation between RVO and jet fuel's discount to Nymex ULSD futures averaged -0.14. In 2020, jet fuel became severely devalued because of widespread global movement restrictions, and its relationship with RVO likewise failed to show the level of correlation of the past four months.

RVO began rallying this March in part because of a shortage of renewable credits, knowns as RINs, which largely followed low fuel demand amid the Covid-19 pandemic.

RVO has mostly maintained its strength after repeatedly hitting historic highs in May. This is because of heightened uncertainty surrounding details of the RFS program such as mandates and exemptions. In addition, fundamental constraints, such tight feedstock supplies for biomass-based diesel, have pushed up the corresponding D4 RINs and contributed to a higher RVO as well.

As the RVO's share in the Nymex ULSD futures contract grew, its value has become the dominant factor that needs to be discounted for off-road fuels. This is evident not only in the jet fuel market but also in heating oil: Low-sulphur heating oil (ULSH) is valued in the market as a differential to ULSD less RVO.

In pre-pandemic times, jet fuel's relative weakness to RVO-inclusive Nymex ULSD futures could also come from refinery yield adjustments. Unlike ULSH, which is similar in specification to ULSD and does not require adjustment in the distillation process, refiners have a small amount of room to raise jet yields when RVO is high. This increase in production would subsequently depress jet fuel prices.

But this factor has been less prominent during the RVO rally in the last few months, in part because jet fuel demand remains lagging that of other fuels such as gasoline. While gasoline demand has mostly returned to pre-Covid-19 levels, international air travel has stayed relatively depressed. This has kept refiners from raising jet yields despite the RVO avoidance it could provide.

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