US Midwest spot refined product market participants entered 2024 with major questions over how EPA will handle a 2022 request from a group of eight Midwest governors to allow year-round sales of E15 in their states.

The governors in 2023 asked the agency to issue regulations that would allow equal treatment of E10 and E15 during the summer of 2023 by capping the RVP for both fuels at 9 psi during the high-demand driving season.

EPA, in March 2023, proposed a rule that would allow the summertime sale of E15 in the petitioning states, but not until the spring of 2024.

Refiners, however, have argued that EPA’s decision would require them to provide a lower 7.8 lb RVP CBOB that would allow both E10 and E15 to meet the 9 psi specification.

Fuel producers, however, are concerned that because not all Midwest states signed onto the petition to EPA, the waiver could create logistical issues for the Midwest market, especially for pipelines, which could be forced to move two different CBOB RVP specifications during the summer. Some Midwest sources, however, told OPIS that if EPA grants the waiver in the spring of 2024, those states in the region that were not part of the request would likely move to the lower 7.8-lb RVP CBOB.

While the petitioning states and the ethanol industry criticized the agency for failing to approve the regulatory change in time for the 2023 driving season, the Biden administration, for a second straight summer in 2023, issued a series of waivers lifting restrictions on the sale of E15. Those did not, however, require refiners to provide lower RVP blendstock.

See also: US Ethanol Industry Explores Avenues for Expanding its Markets, Jan. 26, 2024

Midwest market participants said they would enter 2024 somewhat in the dark over what the summer RVP requirements will look like, cautioning that unrestricted sales of E15 could have big impacts on the fuel supply chain and prices.

Patrick Searles, downstream fuels policy director with the American Petroleum Institute, told the EPA at a March 2023 public hearing on the proposed rule that even with the decision to delay the move to April 2024, “there still is likely to be insufficient time to engineer projects, identify capital, obtain the permits, and contract and deploy the skilled trades to construct the systems needed.”

In September 2023, Paul Machiele, director of the EPA’s Fuel Programs Center, acknowledged that the rule could “require significant changes in the distribution systems.” And he added that EPA has the right to delay implementation if concerns over the supply persist.

And if EPA does approve the change in the spring of 2024, then many are wondering just how the decision would affect the spot gasoline market. “You instantly increase the gasoline pool by 5% with the stroke of a pen,” one source said. “What does that do to the basis?”

Spot gasoline prices trade at differentials to NYMEX futures and the question being asked by many in the market is whether more E15 will lead to lower spot RBOB prices and just how the lower 7.8 lb CBOB will be priced in relation to more typical 9 psi blendstock.

The Midwest gasoline and distillate spot market also experienced strong price volatility in 2023 and a question on the minds of many is whether this is likely to continue into the new year.

One market player, citing the unusually long period of volatility this year, said he believes more of the same is likely on tap for the Chicago market in 2024.

According to OPIS data, Chicago CBOB spot prices fell to a 2023 of just under $1.70/gal on Dec. 7, 2023. The last time the price fell below that mark was mid-February 2021.

And the 2023 low came just four months after prices hit a 2023 high above $2.80/gal.

Group 3 sub-octane gasoline also saw hefty price spikes in 2023, rising to a $3.57/gal high for the year on Sept. 7, 2023, the highest mark since late June 2022.

Similarly Group 3 ULSD hit a 2023 high price of $4.20/gal on Oct. 20, 2023, the highest recorded price in about a year.

While this type of volatility remains difficult to plan for, and market participants have grown used to price swings due to extreme weather and refinery disruptions, and one source said 2023 may be viewed by some as a reference market, given that the Midwest harvest season – a period of high distillate demand – was “ideal.”

2023 was also notable for a lack of major refinery upsets, particularly in the fourth quarter. If this trend continues into 2024, participants may have a clearer picture of what they can expect.

The Energy Information Association put Midwest refinery utilization at above 100% for two weeks starting in late August, allowing the region’s refiners to easily meet increased demand as the harvest season ramped up.

That baseline of what supply and pricing looks like when running at full capacity may provide market participants with a clearer picture for 2024 – if they can count on that continuing.

See also: Changing Regulations Could Spur Pricier Midwest Gasoline This Summer, Feb. 3, 2023