Government incentives to produce ethanol or reduce greenhouse gas emissions could alter the dynamics of the gasoline market, potentially impacting the price of RBOB gasoline. For example, hurricanes or other extreme weather events in key refining regions can cause refinery shutdowns, disrupting gasoline production and leading to a temporary spike in RBOB prices. Here are four important facts for anyone trying to trade the gasoline futures market.
Enter Stage Left – Ethanol
Conventional Blendstock for Oxygenate Blending (CBOB) is a blendstock that’s combined with ethanol to get E10 gasoline. Gasoline is similar in that it has multiple components that make up the gasoline recipe. At the end of that recipe you have two types of almost finished gasoline called Conventional Blendstock for Oxygenate Blending and Reformulated Blendstock for Oxygenate Blending. Additionally, RBOB price changes lag a few days behind the price you pay at the gas station.
Reformulated gasoline produces less smog than other gasoline blends. As a result, around 30% of the U.S. market requires gasoline to be reformulated. Traders venturing into the futures market for the first time need to consider the inherent risks… Like any other commodity, natural gas is influenced by the forces of supply and demand. The Middle East used to have a stranglehold on the top ten producers worldwide, but the U.S. recently surpassed the region’s output.
CBOB and RBOB
When crude oil prices rise, refining margins generally increase, driving up the price of RBOB gasoline. RBOB gasoline futures are primarily traded on the New York Mercantile Exchange (NYMEX), a division of CME Group. The futures contract for RBOB gasoline, commonly known as the “RBOB Gasoline Futures” contract, is a standardized agreement to buy or sell a specified amount of RBOB gasoline at a future date. The RBOB gasoline futures contract is settled by physical delivery.
- The ethanol and gasoline are splash blended as the tanker truck fills before making the final trip to the gasoline station.
- It does not contain ethanol and must be mixed with it (usually in a 10% blend) before it is sold as finished gasoline.
- There isn’t an easy way to invest directly in RBOB gas with stocks or bonds, but you can invest in energy sector stocks and bonds affected by the same economic forces.
- MTBE also displaces gasoline components such as aromatics— e.g., benzene and sulfur—optimizing the oxidation during combustion.
MTBE also displaces gasoline components such as aromatics— e.g., benzene and sulfur—optimizing the oxidation during combustion. Long ago, in the bad old days when our cars were big, fuel was cheap, and we actually put lead in the gasoline, there was conventional gasoline. 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.
RBOB is typically used in regions where ethanol-blended gasoline is mandated by law, such as the United States. The elimination of lead in gasoline and the introduction of catalytic converters in the mid-80s was only the first step in cleaning up the air. Other compounds, such as sulfur and benzene, still made it past the catalytic converter and into the air. Refiners have been adding MTBE to gasoline since 1979 to raise gasoline octane ratings and help prevent engine knocking.
RBOB Gasoline Trading: A Detailed Guide
For RFG (Reformulated Gasoline) to meet VOC requirements, the finished blend must have a low Reed Vapor Pressure (RVP), generally less than 7.0 psi during the summer. 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.
Investing in RBOB Gasoline
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. When trading futures or options contracts, investors often use leverage to control larger positions than they would be able to with their initial capital.
- That’s why you’ll often see ethanol listed along with gasoline and diesel in rack prices.
- Since ethanol may increase the NOx, other additives and formulations are needed to meet higher air quality standards in California, which has a lower NOx limit.
- 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.
- But it also raises Reid Vapor Pressure (RVP), which can be tricky.
- Refining capacity can be impacted by issues such as refinery maintenance, natural disasters, and regulatory changes.
- Today, ethanol is used primarily as motor fuel and a fuel additive.
The price for the RBOB gasoline futures contract is quoted in U.S. dollars and cents. The minimum price tick for RBOB is 0.0001, equivalent to a movement of $4.20 for one contract. CARBOB is even more expensive, and is the main reason why California gasoline prices are typically higher than anywhere else in the country. Since ethanol may increase the NOx, other additives and formulations are needed to meet higher air quality standards in California, which has a lower NOx limit.
During the summer months, the demand for gasoline typically increases due to higher travel activity, especially in countries like the United States. Conversely, during the winter months, gasoline demand generally declines, which can result in lower prices. From an investing perspective, RBOB gas is important because it’s the benchmark for gasoline futures. Additionally, RBOB gas prices move before the price at the pump moves. So this may give you some insight into what retail gas prices will be in a few days.
The refiner CMC Markets Review must remove light molecular weight, high RVP components, which changes the RFG’s distillation characteristics. This requires the removal of some heavy molecular weight and high boiling point components as well. Gasoline itself was not invented, but rather was discovered as a by-product of the production of kerosene and the refining of crude oil. 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. Since then, numerous developments have improved the quality of gasoline as it is refined from crude oil all over the world.
Mandated by the EPA, ethanol is the leading oxygenate added to gasoline in the United States. The federal government supports the ethanol industry through subsidies given to farmers and manufacturers. Today, ethanol is used primarily as motor fuel and a fuel additive.
Trading WTI CFDs
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RBOB gasoline is a specific blend of gasoline that is designed to meet environmental regulations for the reduction of pollutants. The term RBOB stands for Reformulated Blendstock for Oxygenate Blending, referring to the gasoline that is intended to be mixed with oxygenates (such as ethanol) before it is used. This blend is commonly used in the United States, and it helps in reducing emissions from vehicles, improving air quality.
The Mixers: CBOB and RBOB
Futures contracts allow investors to buy or sell RBOB gasoline at a predetermined price at a future date. These contracts are standardized agreements that are traded on commodity exchanges, such as the New York Mercantile Exchange (NYMEX). Since RBOB gasoline is derived from crude oil, fluctuations in crude oil prices have a direct impact on RBOB gasoline prices. Crude oil serves as the primary input in gasoline production, and changes in oil prices can significantly influence the cost structure of RBOB gasoline.
Use our position size calculator to determine the optimal number of contracts based on your risk tolerance and account size. These specifications make RBOB Gasoline (RB) Futures suitable for traders seeking exposure to energy markets. Sometimes, detergents or other additives are blended into gasoline before it hits retail stations—those additives are a way that fuel brands differentiate themselves with customers. Drivers may think that crude oil goes into a refinery and gasoline comes out.