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Analysis-U.S. oil refiners bet the farm Biden will back them on biofuels

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November 11, 2021

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – U.S. merchant oil refiners like Monroe Energy and PBF Energy Inc are playing chicken with the White House, taking moves in the biofuels credit market that could force them to close plants and fire union workers unless the Biden administration bails them out by changing the rules on blending biofuels in gasoline.

Merchant refiners have long tried to dismantle a U.S. law requiring them to blend biofuels like ethanol into their fuel or buy credits from competitors who do.

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But until very recently, they largely continued to participate in the multibillion-dollar credit market by buying credits to offset their production, a Reuters analysis of earnings releases shows. But, now, some of these same refiners are building up record short positions in the credits.

Behind the shift is a bet that U.S. President Joe Biden will ultimately side with refiners and their powerful union supporters. But significantly rolling back the law as they wish would anger the nation’s Farm Belt, experts interviewed by Reuters said.

Refiners have extra leverage right now because the White House is battling rising fuel prices, which are hurting Biden’s poll ratings.

“This is nothing more than a political shakedown,” Brooke Coleman, executive director of the Advanced Biofuels Business Council, told Reuters. “These refineries are daring the Biden White House to make them lie in the bed they made by intentionally running up massive short positions,” on biofuel credits.

LIABILITIES SKYROCKET

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Refiners who had little outstanding biofuel credit liabilities a year ago have let them climb to record highs https://graphics.reuters.com/USA-BIOFUELS/WHITE-HOUSE/znpnekxowvl/chart.png in the third quarter, according to a review of their latest financial filings.

* Monroe Energy, a subsidiary of Delta Airlines, , has increased its potential biofuel liabilities to a company record of $547 million by the end of the third quarter, up from just $68 million a year prior, the latest filing shows

* PBF Energy Inc has amassed a $1.3 billion credit liability from halting or slowing purchases, according to its third quarter filing, up from $236 million a year earlier.

* CVR Energy, whose majority owner is billionaire Carl Ichan, has a $442 million credit liability, according to the company’s third quarter filing, up from $83 million a year earlier.

None of the companies responded to requests for comment.

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In 2017, Carlyle Group-backed Philadelphia Energy Solutions (PES) stopped buying compliance credits, eventually amassing a $350 million outstanding obligation before it eventually filed bankruptcy. The U.S. Environmental Protection Agency (EPA), as part of the bankruptcy hearings, waived about half of those costs.

The PES refinery eventually shut after a massive explosion in 2019.

“PES taught the market that you can play chicken with the EPA and win. It’s a form of civil disobedience of the law,” said Ed Hirs, an energy economist at the University of Houston.

Hirs said shorting the market is clearly a strategic play, but the gambit carries great risk.

“If the administration doesn’t buckle, then these companies will have to pay billions of dollars to comply. That could force PBF into bankruptcy and we will see if Delta reaches into its pockets to bail out the refinery,” Hirs said.

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HISTORIC YEAR FOR CREDITS

Refiners must turn in the compliance credits to the EPA by March for the previous year, giving them plenty of flexibility on when they take these costs. In the past, refiners purchased biofuel credits daily to match their production, even though they could defer buying if they believe the prices are too high or to manage cash flow.

Prices for the compliance credits, known as RINs, have traded erratically in a historic year for the market. After hitting an all-time record in June at $2.00 each, renewable fuel (D6) credits traded at $1.08 on Wednesday. That level is still above where they started the year at about 80 cents.

In September, Reuters reported that the Biden administration was considering big cuts to the blending requirements. Such a move would anger farm-state voters, so a decision has been delayed as Democratic lawmakers try to pass other big-ticket bills.

DISRUPTIVE SHUTDOWN THREATENED

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Refiners have argued to the White House that the higher RIN costs have boosted prices for gasoline, which have hit above $3.40 per gallon. They have noted that the plants, including ones in Biden’s home state of Delaware, offer high-paying union jobs.

Now at least one producer is threatening to shut a refinery over outstanding biofuel liabilities the company has run up.

In recent weeks, Monroe Energy has made a presentation to various stakeholders, including local politicians and labor leaders, painting a stark outlook for its refinery outside Philadelphia, according to two sources who have seen the documents.

The company presentation made clear that either the Biden administration intervenes and rolls back U.S. biofuel laws or its around 200,000 barrel-per-day refinery will be forced to shut its doors and lay off hundreds of union workers, the sources said.

If the Biden administration fails to intervene and prices stay at current levels, the Delta refinery would have to go into the market and settle a significant portion of its $547 million liability in upcoming months.

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The refinery recorded a $186 million loss in the first three quarters of 2021, filings show.

“They made it clear that this is the hill they are preparing to die on,” said a source who has seen the presentation.

(Reporting By Jarrett Renshaw and Stephanie Kelly; Editing by David Gregorio)

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U.S. stock futures, oil regain some ground after Omicron battering

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November 29, 2021

By Wayne Cole

SYDNEY (Reuters) – Asian markets regained a little composure on Monday as investors settled in for a few weeks of uncertainty on whether the Omicron variant would really derail economic recoveries and the tightening plans of some central banks.

Oil prices also bounced $3 a barrel to recoup some of Friday’s shellacking, while the safe haven yen took a breather after its run higher.

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The new variant of concern was found as far afield as Canada and Australia as more countries imposed travel restriction to try to seal themselves off.

Britain called an urgent meeting of G7 health ministers on Monday to discuss developments on the virus, although a South African doctor who had treated cases said symptoms of Omicron were so far mild.

“There is a lot we don’t know about Omicron, but markets have been forced to reassess the global growth outlook until we know more,” said Rodrigo Catril, a market strategist at NAB.

“Pfizer expects to know within two weeks if Omicron is resistant to its current vaccine, others suggest it may take several weeks. Until then markets are likely to remain jittery.”

Trading was erratic early on Monday but there were signs of stabilisation as S&P 500 futures added 0.8% and Nasdaq futures 0.9%.

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Both indices suffered their sharpest fall in months on Friday with travel and airline stocks hit particularly hard.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1% but was off early lows. Likewise, Japan’s Nikkei pared early losses to be down 0.9%.

Bonds gave back some of their gains, with Treasury futures down 11 ticks. The market had rallied sharply as investors priced in the risk of a slower start to rate hikes from the U.S. Federal Reserve, and less tightening by some other central banks.

Two-year Treasury yields edged up to 0.55%, after falling 14 basis points on Friday in the biggest drop since March last year. Fed fund futures had pushed the first rate rise out by a month or so.

The shift in expectations undermined the U.S. dollar, to the benefit of the safe haven Japanese yen and Swiss franc.

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Early Monday the dollar had steadied somewhat at 113.81 yen, after sliding 1.7% on Friday. The dollar index held at 96.190, after Friday’s 0.7% drop.

The euro paused at $1.1294, following its rally from $1.1203 late last week.

European Central Bank President Christine Lagarde put a brave face on the latest virus scare, saying the euro zone was better equipped to face the economic impact of a new wave of COVID-19 infections or the Omicron variant.

The economic diary is also busy this week with China’s manufacturing PMIs on Tuesday to offer another update on the health of the Asian giant. The U.S. ISM survey of factories is out on Wednesday, ahead of payrolls on Friday.

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen speak before Congress on Tuesday and Wednesday.

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In commodity markets, oil prices bounced after suffering their largest one-day drop since April 2020 on Friday.

“The move all but guarantees the OPEC+ alliance will suspend its scheduled increase for January at its meeting on 2 December,” wrote analyst at ANZ in a note.

“Such headwinds are the reason it’s been only gradually raising output in recent months, despite demand rebounding strongly.”

Brent rebounded 3.9% to $75.57 a barrel, while U.S. crude rose 4.5% to $71.24.

Gold has so far found little in the way of safe haven demand, leaving it stuck at $1,791 an ounce.

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(Reporting by Wayne Cole; Editing by Richard Pullin & Shri Navaratnam)

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Nissan Motor to spend $17.6 billion to accelerate electrification

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November 29, 2021

TOKYO (Reuters) – Nissan Motor Co said on Monday it will spend 2 trillion yen ($17.59 billion) over the next five years to accelerate vehicle electrification as it bets tighter carbon emission restrictions will spur demand for electric cars and hybrids.

Japan’s No. 3 car maker will introduce 23 electrified vehicles by 2030, including 15 electric vehicles (EV), and plans to introduce all solid-state batteries by March 2029, it said in a statement.

Nissan’s deeper push into battery-powered cars comes as consumer demand for such vehicles grows in key auto markets such as China and the United States and as its competitors release new electric vehicles.

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Although still only a small portion of vehicles on the road, global electric car registrations in 2020 grew 41% even as the overall car market contracted by almost a sixth, according to the International Energy Agency (IEA).

Nissan, like other Japanese car makers, however, has yet to commit to completely abandoning fossil-fuel vehicles.

At the U.N. climate summit in Glasgow this month, major car makers, including General Motors and Ford Motor Co, signed on to a declaration that committed them to phase out fossil fuel vehicles by 2040.

($1 = 113.7000 yen)

(Reporting by Tim Kelly; Editing by Christopher Cushing and Muralikumar Anantharaman)

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Shares of Macau casino operator Suncity suspended -HKEX

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November 29, 2021

HONG KONG (Reuters) – Shares of Suncity Group Holdings Ltd were suspended on Monday after its chief executive was believed to be among 11 people arrested by Macau authorities on Sunday over alleged links to cross-border gambling and money laundering.

The South China Morning Post reported that Macau police said on Sunday a 47-year-old businessman surnamed Chau was among those arrested. Alvin Chau is head of Suncity.

Suncity could not be reached for comment. Shares of the company last closed at HK$0.255.

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(Reporting By Anne Marie Roantree; Editing by Kim Coghill)

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