Takeaway

The presenter argues that California's recent regulatory change to allow year-round E15 sales is a game-changing bullish development for Midwest ethanol. This move is expected to open a new market for 600-800 million gallons of ethanol, potentially shifting the entire supply-demand balance. This fundamental demand boost is contrasted with ongoing regulatory uncertainty from the EPA regarding RINs reallocation.

What the presenter said

• The California Assembly has changed rules to allow existing E10 filling station equipment to be used for delivering E15, a significant step forward. [01:07]
• This move overcomes a previous block by the California Fire Marshal related to vapor capture issues. [00:55]
• The presenter views the opening of the California market as a major event for Midwest ethanol, representing 600 to 800 million gallons of new demand. [01:37, 01:47]
• California is an attractive market given its high fuel prices (cited at $6/gallon), its shortage of octane and liquid fuels, and E15's average nationwide price discount of 9%. [01:56]
• Separately, the EPA plans to propose a reallocation of 770 million RINs for the 2026 and 2027 blending years, with a formal proposal expected by the end of October. [02:47]
• While there is debate about the physical feasibility of reallocating that many RINs, the presenter believes the EPA's recent announcements could have been worse for the industry. [03:16, 03:41]
• The speaker also noted that refiners are currently posting record quarterly profits and that US diesel exports are increasing. [04:00]

Trade ideas

• None stated. The presenter did not put forward an actionable trade idea, but framed the California E15 development as a fundamentally bullish catalyst for ethanol demand, tempered by regulatory uncertainty from the EPA.

Levels and data cited

• CA Gasoline Price: $6/gallon.
• E15 Price Discount: Averages 9% cheaper than gasoline nationwide.
• Potential CA Ethanol Demand: 600-800 million gallons of new market (cited from Robert White, Renewable Fuels Association).
• EPA RINs Proposal: Proposed reallocation of 770 million RINs for the 2026-2027 blending years.

Risks and what would invalidate this

• There is uncertainty regarding the physical feasibility of the EPA reallocating 770 million RINs as proposed.