And, mostly, that final mixology does not happen at the refinery level. 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. Now let’s look at the import volume for the CBOB for the rest of PADD 1 that does not require the reformulation. Leading up to 1990, the wintertime pollution over a number of major metropolitan areas caused concern about the levels of sulfur and different unburned hydrocarbon compounds in automobile exhaust. The cold air allowed engines to run cooler, creating more unburned hydrocarbons.
Individuals who own a business that is sensitive to gas prices—a trucking company, for example—can use RBOB gas futures as a hedge. If you expect a future increase in gas prices, you can buy an RBOB futures contract, say, at $2.30 a gallon. If the price of gas rises past $2.30, you can sell your futures at a profit. If the price of gas drops below $2.30, you would sell the futures at a loss but save money at the pump. For example, since many of the refineries for gasoline are located in the U.S.
Investing in RBOB gasoline presents a range of opportunities for those looking to gain exposure to the energy market and benefit from the volatility in gasoline prices. Whether through futures contracts, ETFs, or options, investors can find ways to capitalize on price movements or hedge against risks in the energy sector. However, RBOB gasoline investing comes with its own set of risks, including price volatility, regulatory changes, and supply chain disruptions. Traders often engage in RBOB gasoline trading as a speculative activity, attempting to profit from price fluctuations.
What Is the Difference Between CBOB and RBOB Gasoline?
From this point on in the supply chain, the corrosive nature of ethanol is not a concern. The tanks and piping systems of most gasoline stations today are constructed out of fiberglass and corrosion-resistant plastics. And, a protective layer of plastic lines the insides of gasoline delivery trucks. This means that your single-malt scotch mixes well with club soda.
- These funds tend to have relatively stable share prices, and higher than average yields.
- RBOB is Reformulated Blendstock for Oxygenated Blending, a mix of petrochemicals intended to be mixed with ethanol to produce finished motor gasoline.
- For example, during times of increased regulatory oversight or mandates to use higher ethanol blends, the demand for RBOB gasoline may increase, pushing up its price.
- We provide broker reviews and ratings to help users find a suitable broker according to their own needs.
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Aside from its health hazards, gasoline has also long been under the gun for contributing to greenhouse gases and global climate change. While we refer to the liquid as “gasoline” in the U.S., many other parts of the world know it by the term “petrol”, or sometimes “petrogasoline”. 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. Changes in tax policy or subsidies for renewable fuels, such as ethanol, can also influence the RBOB market.
- Crude oil serves as the primary input in gasoline production, and changes in oil prices can significantly influence the cost structure of RBOB gasoline.
- That means you only need 12% of the total investment down to buy the contract on margin.
- 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.
- From this point on in the supply chain, the corrosive nature of ethanol is not a concern.
Key Market Participants
Gasoline can be a particularly nasty thorn in a consumer’s side; prices at the pump can wildly fluctuate due to the dramatic price swings of crude over small periods of time. RBOB gasoline futures are listed on the Chicago Mercantile Exchange (CME) under the futures symbol RB. As mentioned above, gasoline is a natural by-product of crude oil.
For every three barrels of crude oil refined, approximately two barrels of gasoline can be salvaged. Refining this essential fuel can be done in a variety of ways, with the most popular being forms of “cracking”. Cracking is a process whereby hydrocarbon molecules are broken up by heat and pressure into lighter molecules. There are various forms of this process, including thermal cracking (the most popular) and catalytic cracking. Other production/refining methods include polymerization, alkylation, and isomerization.
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. This form of trading can be used for hedging purposes or to speculate on future price changes in the market. RBOB Gasoline Futures (RB) provide traders with exposure to gasoline prices. These contracts allow for speculation on gasoline price movements, hedging fuel costs, or diversifying energy investment portfolios with exposure to refined petroleum products. First, transportation of this fuel can be expensive, as can the refining process to turn crude into gasoline.
You can use the CME Group website or the Nasdaq website to find the current price of a gallon of RBOB gas. You may notice that between 2004 and 2006 there are many weeks where the dot is on the zero line—meaning no imports. But once the federal mandates kicked in, and the new EPA RFG maps for the US came online, imports of RBOB grew. Before I forget, there is the blending-stock cousin, CARBOB, a special RBOB formula mandated by the state of California. Lawsuits continued, and oil companies asked for transition assistance in the form of $2 billion and liability protection while they phased out MTBE.
Benchmark trades all session long with a full-day view of East of the Rockies spot fuel markets. RVP measures the volatility in gasoline and is subject to seasonal mandates. So, blending ethanol can be complicated during summer months, when people are looking for lower-RVP 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. There are also options for energy-related ETFs focused on oil and natural gas. Whereas buying an RBOB future could cost thousands, shares of ETFs can cost less than $20.
The Elements of a RBOB Contract
RBOB is more expensive to refine—more energy and more effort are required to pull some of the additional hydrocarbons out of the fuel. Producing reformulated gasoline using ethanol presents problems for refiners. Ethanol affects nitrogen oxides (NOx) and toxic emissions as well as Volatile Organic Compounds (VOCs).
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This means most investors want to liquidate positions prior to the expiration of the contracts. If a position is not liquidated, the holder of a long contract might be responsible for taking delivery of 42,000 gallons of gasoline. It is safe to say that most investors do not want to take physical delivery of that much gas. Thus, investors must be aware of the different deadlines for futures contracts and offset any positions before the risk of delivery comes into play. Methanol, derived from natural gas, and isobutylene from the butane obtained in the crude eToro Review oil refining process, are reacted together to form MTBE.
Factors Affecting Natural Gas Prices
That request did not survive congressional review, and the lack of MTBE liability protection quickly brought an end to its use. An ongoing trade battle between the United States and China has magnified the impact of tariffs… Gasoline is one of the most widely known and used commodities in the world, primarily utilized for fuels.
Supply Fuels Gasoline Prices
RBOB Gasoline (RB) Futures trade with extended hours, providing flexibility for traders in different time zones. In the Gulf Coast spot market, Conventional Blendstock for Oxygenate Blending (CBOB) tends to be the most liquid product because there are fewer areas requiring RFG in that region. Reformulated gasoline is required in certain areas to reduce smog per Clean Air Act amendments. RFG is required in cities with high smog levels and is optional elsewhere.
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. RBOB is Reformulated Blendstock for Oxygenated Blending, a mix of petrochemicals intended to be mixed with ethanol to produce finished motor gasoline.