Intercontinental Exchange launches 2 RVO futures contracts

Global data, technology and market-infrastructure provider Intercontinental Exchange Inc. announced March 28 the launch of two renewable volume obligation (RVO) futures contracts, expanding its U.S. renewable fuels futures markets.

The U.S. EPA’s Renewable Fuel Standard mandates the incorporation of renewable fuels into transportation fuel. Each year, the EPA outlines the volume requirements for each renewable fuel category and sets those volumes through the annual RVO ruling.

Obligated parties under RFS program include refiners and importers of transportation fuel in the U.S. Each year these companies calculate their renewable fuel obligation by multiplying the RVO percentage across the four renewable fuel categories under RFS, by the volume of transportation fuel they produced or imported that compliance year.

The RVO applies to a basket of U.S. renewable identification number (RIN) credits, which are generated by renewable fuel producers to track the compliance of transportation fuel under the RFS program. Companies must either generate RINs or purchase them to meet their annual commitments. The RVO is critical to the margin calculations of refiners, as well as importers and exporters of transportation fuels, and is an important consideration when exporting fuel and determining whether arbitrage opportunities exist, as well as influencing the crack spread for refiners using the fuel to create other products.

As a result, companies need a means to hedge their RVO exposure and Intercontinental Exchange has launched the RVO (OPIS) Current Year Future and Argus RVO Current Year Future, based on the OPIS and Argus daily price assessments. Each futures contract is equivalent to 50,000 gallons.

“Compliance with the Renewable Fuel Standard is a cost which refiners and importers of transportation fuel in the U.S. need to manage,” said Jeff Barbuto, global head of oil markets at Intercontinental Exchange. “The RVO futures, in combination with our existing RINs futures, will help the market manage exposure to renewable fuel obligations. RINs volume and open interest have reached record levels in 2022 as this market continues to grow and companies recognize the benefits of hedging this cost.”

Intercontinental Exchange offers cash-settled RINs futures, including the D6 ethanol and D4 biodiesel (OPIS). The number of participants trading Intercontinental Exchange RINs has doubled versus 2020 as participants manage their exposure to the price of RINs. So far this year, roughly 7,861 RIN futures have traded, equivalent to 393 million RINs.