For example, hurricane weather in the Gulf of Mexico can have a big impact on RBOB’s price because it affects the supply produced by the many U.S. refineries in the gulf. Drivers use more gas in the summer, which also affects the price because of the increase in demand. Fluctuations in global demand and how refineries respond to changes in demand can materially affect gasoline prices. Turmoil in important oil-producing countries can create spikes in gasoline prices. In the past, Middle East wars, oil embargos, political coups and acts of terrorism have created fears of supply disruptions and higher prices.
- That means you only need 12% of the total investment down to buy the contract on margin.
- Say you want to buy an RBOB contract when the price is around $2.30 per gallon.
- Gasoline is one of the most widely known and used commodities in the world, primarily utilized for fuels.
Futures contracts aren’t as popular among individual investors as stocks and bonds because they are generally harder to analyze and trade. Futures involve leverage, which can sink a whole account in days with relatively small moves. Crude oil varieties and the technology available for refining them can lead to different gasoline products and pricing from one refinery to the next.
What Is RBOB Gas?
Fortunately, traders can evaluate refiners profits by analyzing the margins they produce. The profit margins a petroleum refiner sees is referred to as the crack spread. One of the most well-known refinings crack spreads is the RBOB/Brent crack spread.
Commodities and Trade Tariffs
Gasoline is one of the most widely known and used commodities in the world, primarily utilized for fuels. But its application extends beyond that industry to such uses as paint solvents, among others. Seasonal patterns also emerge as a result of formulation requirements for gasoline. Environmental regulations in the United States, for example, require gasoline sold in the summer to be less susceptible to evaporation.
In investing, RBOB gas is the benchmark for gasoline on the futures market. Minimum contracts are equal to 42,000 gallons (1,000 barrels) and trade for the value per gallon. That means you need to multiply the quoted price by 42,000 to know what the contract cost will be. First, transportation of this fuel can be expensive, as can the refining https://www.day-trading.info/best-stocks-to-buy-fractional-shares-4-blue-chip/ process to turn crude into gasoline. 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.
Investing in RBOB Gasoline
Say you want to buy an RBOB contract when the price is around $2.30 per gallon. That means you only need 12% of the total investment down to buy the contract on margin. Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.
Whereas buying an RBOB future could cost thousands, shares of ETFs can cost less than $20. It is common because it is considered better for the environment and is required in some areas. Increasing demand for gasoline in Asia, Latin America and the Middle East https://www.topforexnews.org/software-development/s4kibs4mi-java-developer-roadmap-roadmap-to/ often outpaces supply from those regions. Demand for gasoline has been steadily declining in Europe and the United States. However, after the invention of the automobile in 1892, gasoline became the main source of fuel for cars and light-duty vehicles.
The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices. Since both producers of WTI and Brent compete for the same refiners as customers, the spread between the two oils is an important metrics for refiners. WTI is quoted on the Chicago Mercantile Exchange for pickup in Cushing Oklahoma. This area is landlocked and therefore requires shipment via pipeline or rail. Brent crude oil is one of several types of light sweet crude oil that serves as the global benchmark for crude oil. Brent is described as light because of its relatively low density, and sweet because of its low sulfur content.
The statistics for RBOB gasoline are not perfect due to the fact that production and consumption is measured by crude oil rather than gasoline itself. The figures below represent global consumption and production of crude oil, of which gasoline is derived. Due to gasoline’s widespread use, it has come under fire for numerous health and environmental concerns over the last few decades. From a health standpoint, the fuel stores numerous carcinogenic chemicals, and can be a danger to the general public if a leak were ever to occur. This means that storage tanks, delivery trucks, and refining plants present the most dangerous threats of the chemical being released into the environment. Aside from its health hazards, gasoline has also long been under the gun for contributing to greenhouse gases and global climate change.
RBOB is a distillation of hydrocarbons from crude oil that is used to produce gasoline fuel. After it is distilled from petroleum, RBOB is blended with ethanol to produce reformulated gasoline. This means most investors want to liquidate positions prior to the expiration of the contracts.
Another very actively traded crude oil is WTI (West Texas Intermediate). This is another light sweet crude oil that is used in the refining process to create gasoline. WTI is the US benchmark and since the US is the largest consumer of gasoline world-wide, WTI is an actively traded crude oil benchmark. For example, since many of the refineries for gasoline are located in the U.S.
Liquids and gases are separated into components by weight and boiling point. The lightest components, such as gasoline rise to the top while the heaviest components, such as residual oil, fall to the bottom. Light components include gasoline, which is condensed from a gas back into a liquid. Reformulated blendstock for oxygenate blending (RBOB) is a grade how to use shibaswap: what is shibaswap and how to use it of gasoline used in U.S. futures contracts traded on commodity exchanges as a way to speculate on the price of oil. The role of the refiner should not be underestimated as it allows crude products to be altered into a consumable good such as gasoline, diesel fuel or jet fuel. The refiner, just like the producer and consumer is incentivised by profits.
Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline is a fuel product made from refined crude oil. RBOB gasoline often goes by the names gasoline, petro gasoline or petrol. RBOB is an acronym for “Reformulated Gasoline Blendstock for Oxygen Blending”.
Gulf Coast region, weather issues in that area can drive up the price for RBOB. Another important factor to consider is that gasoline is heavily taxed in many jurisdictions. RBOB gasoline futures are listed on the Chicago Mercantile Exchange (CME) under the futures symbol RB.
