Potential EPA ethanol mandate change gives wings to Delek

Regulator mulls lowering blending requirements

Shares of Delek US Holdings are gaining a lot of ground for the second day in a row as investors react to an Environmental Protection Agency proposal to cut back on the amount of ethanol that refiners need to put into their fuels.

Since trading opened Thursday morning, Delek is up 18 percent — an increase in its market capitalization of more than $215 million — on heavy trading volume. The big move has erased a month's worth of steady drops in Delek (Ticker: DK), which had been cut in half since its March highs.

The EPA's plan calls for dropping by almost 6 percent to 13 billion gallons the amount of corn-based ethanol refiners need to blend into their products. The amount of advanced biofuels required for blending would fall by 20 percent to 2.2 billion gallons. (Click here for more from Bloomberg's Mark Drajem and Lucia Kassai, who also describe the industry's reservations about the so-called blend wall.)

If enacted, the regulatory changes would boost Delek's profitability in a number of ways, most notably by increasing the demand for petroleum-based fuels. The company's second-quarter report noted that the costs of blending ethanol and biodisel has hurt its margins so far this year. Longer-term, a drop in the use of ethanol also would require fewer capital investments at the company's refineries.

Delek's market gains in the past two sessions have outpaced those of its rivals. Only Alon USA Energy has risen more than 15 percent while the industry's biggest names, including Valero and Tesoro are up "only" 10 percent or less.