4 Factors You Didn’t Know About RBOB

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 https://www.dowjonesanalysis.com/ consecutive months. First, transportation of this fuel can be expensive, as can the refining 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.

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. Crude oil is composed of a number of different hydrocarbons, or long chains of molecules. Longer chains make heavier hydrocarbons, as well as higher boiling points. Trading in a current delivery month shall cease on the last business day of the month preceding the delivery month.

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. Fluctuations in global demand and how refineries respond to changes in demand https://www.forexbox.info/ can materially affect gasoline prices. The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices. The supply of gasoline depends on the availability of both crude oil and refineries.

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]. 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. RBOB’s price is most sensitive to supply-and-demand changes for the commodity. 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.

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. The RBOB / Brent crack spread describes the difference between the price of RBOB gasoline and the price of Brent crude oil. RBOB Gasoline is quoted in US cents per gallon and Brent crude oil is quoted in US dollars per barrel. To generate an “apples to apples” comparison, the crack is quoted in US dollars per barrel.

The first is the difference between the price of crude oil and the price of gasoline. The second is the difference between the cost to generate gasoline and the price where gasoline can be sold is the profit margin. The cost to generate gasoline is the value of crude oil plus the distillation process. 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.

Role of Refineries

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. 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. The most prolific uses of RBOB gasoline is as fuel for various products such as cars, lawn mowers, generators, pressure washers, and many other common household appliances. But it also has other applications such as removing paint or grease, and is even used in numerous pesticides and weed killers [see also Invest Like Jim Rogers With These Three Agriculture Stocks].

1. This means most investors want to liquidate positions prior to the expiration of the contracts.
2. A crack spread is the difference between the wholesale price of a refined petroleum product such as gasoline and the price of crude oil.
3. Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline is a fuel product made from refined crude oil.
4. The performance bond or initial margin requirement to initiate one futures contract position is $5,830 (as of November 11, 2015).
5. Demand for gasoline has been steadily declining in Europe and the United States.
6. In an attempt to improve air quality and reduce harmful emissions from internal combustion engines, Congress in 1990 amended the Clean Air Act to mandate the addition of ethanol to gasoline.

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.

RBOB Gasoline: Understanding One of the Most Important Commodities in the World

As a result, weather events or supply congestion in that area can cause short-term delays or price spikes. RBOB is Reformulated Blendstock for Oxygenated Blending, a mix of petrochemicals https://www.topforexnews.org/ intended to be mixed with ethanol to produce finished motor gasoline. New technologies such as electric-powered vehicles, for example, could substantially reduce demand for gasoline.

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 the lead-up to summer, prices tend to rise in anticipation of peak driving season.

Gasoline Basics

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. 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.

How do you trade RBOB gasoline?

The minimum price tick for RBOB is 0.0001, equivalent to a movement of $4.20 for one contract. The weekly chart of the RBOB Brent crack spread shows that at times the crack was as high as $28 dollars per barrel and as low as -$5.5 per barrel. When the crack spread is negative there is no incentive for refiners to purchase and refine Brent oil. This generally occurs during a recession or Brent oil is artificially buoyed by supply disruptions.

Industry watchers measure refiners by their capacity, which is the amount of crude oil that can go into distillation units. 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 “BOB” (before oxygenate blending) because it is formulated for subsequent blending with 10% ethanol to form the final gasoline blend that is marketed to end users.

StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.