That means you need to multiply the quoted price by 42,000 to know what the contract cost will be. Certain options strategies, like vertical spreads, have predefined profits and losses. Oil refineries separate out the different chains by heating the crude oil to different vaporization points, and then distilling the resulting vapors. Gasoline is a mixture of those hydrocarbon chains with boiling points below that of water. These different chains are blended together in various proportions to provide a consistent product for motor fuel.
- If it’s mixed with gasoline at the refinery, every pipe and tank that it passes through will be subjected to higher levels of corrosion.
- The Middle East used to have a stranglehold on the top ten producers worldwide, but the U.S. recently surpassed the region’s output.
- Changes in tax policy or subsidies for renewable fuels, such as ethanol, can also influence the RBOB market.
- It was thrust into popularity with the introduction of automobiles, which had the option of using various fuel sources, but ultimately settled upon gasoline for its strong combustion properties.
- It is also important to note that our consumption is roughly twice that of our production, making our nation so dependent on foreign oil.
- If you expect a future increase in gas prices, you can buy an RBOB futures contract, say, at $2.30 a gallon.
This also means that fuel ethanol attracts water, making it corrosive to the steel used in pipelines and plumbing at oil refineries. If ethanol is pushed through a pipeline, the water FX choice Review that it attracts will corrode the inside of the pipes. If it’s mixed with gasoline at the refinery, every pipe and tank that it passes through will be subjected to higher levels of corrosion.
The prices of RBOB are directly correlated with crude oil, meaning that they will exhibit significant volatility that may be an attractive trait for many traders. Secondly, investments in gasoline can also be used to hedge against inflation, or simply to make a play on our global addiction to fossil fuels. Gasoline is a vital part of our everyday lives, and there is a strict need to consume no matter what economic conditions may be, making it an attractive investment during all kinds of markets. For investors who prefer a more hands-off approach, exchange-traded funds (ETFs) focused on energy and gasoline can provide exposure to the price movements of RBOB gasoline. These ETFs often track the performance of gasoline futures or invest in a basket of energy-related assets, including refiners and energy companies. One of the most common ways to invest in RBOB gasoline is through futures contracts.
What It Means for Individual Investors
This map predates the complete phase-out of MTBE, but it still accurately depicts the wide variety of reformulation required at the local level. An important factor to understand about gasoline is its octane rating. Internal combustion engines, like those found in automobiles, burn fuel in controlled processes. The higher the octane rating, the higher the compression rate, with a more efficient fuel capable of a higher output than those with a lower octane rating. This is the reason why some cars accept only certain kinds of fuel, and why there are price discrepancies among various gas options at the pump see also Three Mining Companies With Robust Yields.
Whilst we try to keep information accurate and up to date, things can change without notice and therefore you should do your own research. In addition to seasonal demand, factors such as economic growth, industrial activity, and consumer sentiment can also drive demand for gasoline and, consequently, influence RBOB prices. The price of RBOB gasoline is influenced by various factors, both at the micro and macroeconomic levels. Understanding these factors is essential for traders looking to engage in RBOB gasoline trading.
Commodities and Trade Tariffs
- By purchasing a call or put option, investors can gain exposure to gasoline price movements without the obligation to take delivery of the actual commodity.
- It is typically traded in futures markets as a standard measure of gasoline price and serves as an important commodity in the energy sector.
- From a chemical standpoint, this low-density fuel is very volatile due to its natural makeup and the numerous additives that can be mixed in, some of which include lead, ethanol, and dye.
- It is used to formulate gasoline that complies with the Environmental Protection Agency’s (EPA) regulations on air quality, making it essential for meeting federal and state requirements.
- For example, a shift in government regulations concerning ethanol blending or environmental standards can affect gasoline production and pricing.
You can get access to trading them through most brokerage firms and futures trading portals. Much of the U.S. gasoline supply comes from refineries in the Gulf Coast region. As a result, weather events or supply congestion in that area can cause short-term delays or price spikes. The map above illustrates a color-coded patchwork of different blends of reformulated gasoline, each one a specific cocktail for the climate.
This market is typically used by refiners, distributors, and large fuel companies to meet immediate supply needs. RBOB gasoline is a crucial component of the broader gasoline market, particularly because it is tied to the use of ethanol in fuel production. The formulation of RBOB gasoline is more complex than traditional gasoline due to the blending requirements, which makes it subject to different price influences.
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Changes in government policies or regulations can impact the price and demand for RBOB gasoline. For example, a shift in government regulations concerning ethanol blending or environmental standards can affect gasoline production and pricing. Investors must remain vigilant about regulatory developments in the energy sector. Geopolitical events, such as conflicts in oil-producing regions or political instability in key gasoline-producing countries, can have a profound impact on the price of RBOB gasoline. Any disruption to the global supply of crude oil, which is often exacerbated by geopolitical tensions, can lead to price increases for RBOB gasoline.
Traders closely monitor global events and political developments, as these can trigger significant price fluctuations. The ability of refineries to produce RBOB gasoline is another critical factor affecting RBOB prices. Refining capacity can be impacted by issues such as refinery maintenance, natural disasters, and regulatory changes. Any disruptions in the refining process can lead to supply shortages and drive up RBOB prices.
Trading WTI CFDs
After it is distilled from petroleum, RBOB is blended with ethanol to produce reformulated gasoline. Prices for RBOB gasoline futures logically have a high degree of correlation with crude oil since gasoline is distilled from crude. Thus, some of the global supply and demand factors for crude oil also apply to RBOB.
RBOB Gasoline (RB) Futures Contract Specifications
RBOB Gasoline futures are traded on the Chicago Mercantile Exchange, with prices quoted in U.S. dollars and cents per gallon under the symbol RB. A single contract represents 42,000 gallons with a minimum fluctuation of $0.0001 per gallon. Listed contracts conduct trading throughout the next 36 consecutive months. While less common for individual investors, the spot market for RBOB gasoline allows for the immediate purchase or sale of gasoline at current market prices.
Price
But its application extends beyond that industry to such uses as paint solvents, among others. Ethanol serves to boost octane levels in gasoline, which can be helpful. But it also raises Reid Vapor Pressure (RVP), which can be tricky.
So, keeping an eye on RBOB prices can give you a sense of where retail gas prices are headed. When it comes to crude consumption, the U.S. uses more than the next four highest consumers combined. It is also important to note that our consumption is roughly twice that of our production, making our nation so dependent on foreign oil. So, OPIS spot market editors see a lot more Reformulated Blendstock for Oxygenate Blending (RBOB) trading in the New York Harbor region. The blendstocks are a mix of components such as butane, reformate and FCC gasoline, which can be combined in different ways to reach needed specifications. To these blendstocks other liquids are added to make the substances that fuel our carpools, take us to grocery stores and get our families to their summer vacations.
Refiners can add it directly into the blending stream as gasoline leaves the refinery. But MTBE, while not classified as a human carcinogen, is suspected to be a potential human carcinogen at high doses. MTBE gives water an unpleasant taste and can render large quantities of groundwater unfit for human consumption. The concern is that MTBE gets into the water supply from leaking underground storage tanks or from gasoline spilled onto the ground.