RBOB is Reformulated Blendstock for Oxygenated Blending, a mix of petrochemicals intended to be mixed with ethanol to produce finished motor gasoline. The margins on calendar spreads are lower because the two contracts have a high degree of correlation and generally move in the same direction. However, one contract might move more than the other due to market conditions. 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.
Do you notice that there are no imports prior to the middle of 2004? The cold air allowed engines to run cooler, creating more unburned hydrocarbons. This, combined with the way cold air tends to trap warmer exhaust, created hazier and smoggier days.
- Do you find it challenging to stay on top of daily changes in fuel prices?
- RBOB futures pricing is influenced by crude oil prices, refining margins, and geopolitical events, all of which are closely monitored by traders and analysts.
- In the lead-up to summer, prices tend to rise in anticipation of peak driving season.
- 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.
- Much of the U.S. gasoline supply comes from refineries in the Gulf Coast region.
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.
Seasonal Demand Patterns
Before it’s mixed to make gasoline that goes in vehicles, RBOB is traded as a commodity. The crack spread, which measures the difference between crude oil prices and the value of refined products like RBOB and distillates, highlights this relationship. A widening crack spread signals strong demand or higher margins, prompting refiners to maximize throughput. Conversely, a narrowing spread may reduce refinery utilization, affecting RBOB supply.
Role in the Gasoline Supply Chain
- This approach requires a deep understanding of the factors driving the gasoline market and the ability to accurately predict future price trends.
- Refiners and distributors hedge to lock in prices and mitigate risks, while speculators aim to profit from price fluctuations, often employing advanced trading models.
- The alcohol in wine, beer, and that fine single-malt scotch is the same ethanol that is blended into our gasoline.
- Traders can exploit these differences by simultaneously buying and selling RBOB gasoline contracts or other related commodities, such as crude oil or ethanol.
Oil refiners look Candle pattern forex at crack spreads when making production decisions. The supply of gasoline depends on the availability of both crude oil and refineries. Industry watchers measure refiners by their capacity, which is the amount of crude oil that can go into distillation units. These industrial facilities separate crude oil, which consists of different hydrocarbons, into smaller component hydrocarbons or fractions.
Trading Symbol
“It would be irrelevant to the consumer to know what the price of RBOB is because they’re not paying the wholesale price of RBOB,” he said. Therefore, it’s important to consider the environmental impact when making the decision between the two. However, if the trader is looking for an eco-friendly fuel, then CBOB is the choice.
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. Benchmark trades all session long with a full-day view of East of the Rockies spot fuel markets.
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. 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.
Market participants use RBOB futures for avatrade review hedging and speculative trading. Refiners and distributors hedge to lock in prices and mitigate risks, while speculators aim to profit from price fluctuations, often employing advanced trading models. These activities contribute to the efficiency of the RBOB futures market.
Using Calendar Spreads and Options for RBOB
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.
Relationship to Other Petroleum Products
You can use the CME Group website or the Nasdaq website to find the current price of a gallon of RBOB gas. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. 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.
Since then, numerous developments have improved the quality of gasoline as it is refined from crude oil all over the world. 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 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). 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. 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. A typical 42-gallon barrel of crude oil yields 45 gallons of petroleum products.
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. 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. Drivers may think that crude oil goes into a refinery and gasoline comes out.
Logistics significantly affect gasoline costs and availability, with disruptions in transportation or pipeline operations often leading to price fluctuations. In conclusion, the main difference between RBOB and CBOB is the type of fuel that each uses. RBOB is made up of a blend of reformulated gasoline and CBOB is composed of conventional gasoline. RBOB is more expensive than CBOB, but it also has lower emission levels, making it more environmentally friendly. The debate between RBOB and CBOB fuels the fire of the oil market, with both offering unique benefits to traders. RBOB swing trading vs day trading stands for Reformulated Blendstock for Oxygenate Blending and is a type of gasoline that has been reformulated to reduce air pollution.