When the crack spread is elevated and the price is well above the cost for refiners to convert Brent into RBOB, there is a large incentive to purchase and refine as much crude oil as possible. There are two components to the profit margin that a refiner can achieve. The first is the difference between the price of crude oil and the price of gasoline.
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When it comes to crude consumption, the U.S. uses more than the next four highest consumers combined. It is also important to note that our consumption is roughly twice that of our production, making our nation so dependent on foreign oil. You can use the CME Group website or the Nasdaq website to find the current price of a gallon of RBOB gas.
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If the price of gas drops below $2.30, you would sell the futures at a loss but save money at the pump. RBOB gasoline futures are listed on the Chicago Mercantile Exchange (CME) under the futures symbol RB. A typical 42-gallon barrel of crude oil yields 45 gallons of petroleum products.
MTBE gives water an unpleasant taste and can render large quantities of groundwater unfit for human consumption. The concern is that MTBE gets into the water supply from leaking underground storage tanks or from gasoline spilled onto the real estate broker vs agent ground. Therefore, options traders must be right about the size and timing of the move in gasoline futures to profit from their trades. Gasoline options contracts expire three business days prior to the expiration of the underlying futures contract.
How Does RBOB Gas Work?
The OPEC countries are key determinants of the supply of oil available in the global marketplace. Many of these countries have experienced political instability in the recent past. Sometimes this instability has led to questions about the supply of oil. Additionally, RBOB price changes lag a few days behind the price you pay at the gas station. So, keeping an eye on RBOB prices can give you a sense of where retail gas prices are headed.
This requires the removal of some heavy molecular weight and high boiling point components as well. Gasoline futures contracts expire on the last business day of the month prior to the delivery month. At expiration, traders must either accept physical delivery of gasoline or roll their positions forward to the next trading month. 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.
The term crack spread describes the difference between the value of gasoline and crude oil. This activity is known as the downstream process of oil and gas companies. In the refining process, crude oil is heated and introduced into the distillation blackbull markets review a scam or legit broker tower. Liquids and gases are separated into components by weight and boiling point.
Start your research with reviews of these regulated brokers available in . 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. Each of these products is recovered at different temperature points.
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. 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.
This also means that fuel ethanol attracts water, making it corrosive to the steel used in pipelines and plumbing at oil refineries. If ethanol is pushed through a pipeline, the water that it attracts will corrode the inside of the pipes. If it’s mixed with gasoline at the refinery, every pipe and tank that it passes through will be subjected to higher levels of corrosion. Also, the OPEC countries have often had disagreements with one another about production levels.
Such disruptions or instability would likely be bullish for gasoline prices. Start your research with reviews of these regulated brokers available in that offer a variety of options for trading and speculating on the price of gas and other commodities. 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.
Gasoline represents nearly half of the petroleum products produced, which ranks it as the number one product recovered during the refining process. RBOB became the benchmark in the United States largely because of legislation banning gasoline with the chemical MTBE which was found in unleaded gas prior to legislation. MTBE was tied to the pollution of groundwater which threatened the health and safety of humans and wildlife. Since the legislation was introduced in the United States, RBOB futures has even become the new benchmark gasoline futures contract.
- Refining this essential fuel can be done in a variety of ways, with the most popular being forms of “cracking”.
- Other compounds, such as sulfur and benzene, still made it past the catalytic converter and into the air.
- 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.
- Gasoline options contracts expire three business days prior to the expiration of the underlying futures contract.
The contract trades globally on 11 best short term investments in 2021 the CME Globex electronic trading platform. 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. 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.
Oil refiners look 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. Brent crude oil is one of several types of light sweet crude oil that serves as the global benchmark for crude oil.
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. Drivers use more gas in the summer, which also affects the price because of the increase in demand. RBOB stands for Reformulated Blendstock for Oxygenate Blending, a component that is used to create reformulated gasoline. Reformulated gasoline produces less smog than other gasoline blends. As a result, around 30% of the U.S. market requires gasoline to be reformulated.