President-elect Donald Trump has made a number of controversial cabinet appointments and nominations in recent weeks, including Exxon Mobil Corporation (NYSE: XOM) CEO Rex Tillerson for Secretary of State and Goldman Sachs Group Inc (NYSE: GS) president Gary Cohen for head of the National Economic Council.
Trump has consistently expressed his intention to make life much easier for U.S. corporations by eliminating regulations and slashing taxes. In theory, this policy approach should be good news for nearly all U.S. companies. In particular though, Trump’s most recent appointment may have saved the days for a handful of oil refiner stocks.
This week, Trump appointed long-time supporter and billionaire hedge fund manager Carl Icahn as special advisor on regulatory reform. Icahn will not be a federal employee, but he will be Trump’s go-to source for advice about how to dial back corporate regulations.
“It’s time to break free of excessive regulation and let our entrepreneurs do what they do best: create jobs and support communities,” Icahn said in a statement.
It’s unclear what exactly Icahn and Trump’s priorities will be when it comes to corporate regulations, but the most likely starting point may be the Renewable Identification Numbers (RINs) quota for merchant oil refiners.
Almost exactly one month prior to his appointment as Trump’s advisor, Icahn penned a blistering editorial for the Wall Street Journal in which he criticized the burden that the RINs requirement was placing on merchant refiners. RINs are electronic credits created when oil companies blend renewable fuels, such as ethanol, with gasoline or diesel. Oil refiners must either generate or purchase a certain number of RINs per year to meet alternative fuel mandates.
Icahn said that the RINs market is now filled with “manipulation, speculation and fraud.” As a result, the price of RINs has skyrocketed from one cent in 2012 to nearly $1 in 2016.
It seems extremely likely that Icahn will encourage Trump to modify or completely eliminate the RINs requirement. If that’s the case, a handful of merchant refiners that have been suffocating under the mandate could get a much-needed breath of fresh air.
Bloomberg reports that HollyFrontier Corp (NYSE: HFC) and CVR Refining LP (NYSE: CVRR) will spend $415 million and $220 million on compliance this year, respectively.
PBF Energy Inc (NYSE: PBF) will spend a staggering $800 million on RINs this year, roughly 30% of the company’s market cap.
Going into Election Day, these three refiner stocks were all down 36-65% on the year. Since Election Day, they are all up 26-47%. With Icahn officially on board the Trump administration train, the rally in oil refiners may be just getting started.
Disclosure: the author holds no position in the stocks mentioned.
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