For the most part, this list contains both emerging and frontier markets, which is what makes gas prices so volatile. Choose the FREE customized information you would like to receive from the world-leading provider of news, data, and analysis for the energy, chemical and environmental commodity markets. Blendstocks are blended with other liquids, such as ethanol, to make finished gasoline. When it comes to choosing between rbob and cbob, it’s important to know the differences.

Traders often engage in RBOB gasoline trading as a speculative activity, attempting to profit from price fluctuations. Since RBOB gasoline futures contracts are highly liquid and often experience significant price volatility, traders can take advantage of short-term price movements. This approach requires a deep understanding of the factors driving the gasoline market and the ability to accurately predict future price trends. Reformulated blendstock for oxygenate blending (RBOB) is a grade of gasoline used in U.S. futures contracts traded on commodity exchanges as a way to speculate on the price of oil. The RBOB futures contract is one of the most actively traded energy futures contracts globally, and it serves as an important price benchmark for gasoline worldwide. Other exchanges, such as the Intercontinental Exchange (ICE), also facilitate trading of RBOB gasoline-related products, including options and futures contracts.

  • In the past, Middle East wars, oil embargos, political coups and acts of terrorism have created fears of supply disruptions and higher prices.
  • RBOB’s price is most sensitive to supply-and-demand changes for the commodity.
  • Refiners have been adding MTBE to gasoline since 1979 to raise gasoline octane ratings and help prevent engine knocking.
  • The national average price of a gallon of regular gasoline is still over $3, and no state has an average price below $2.60.

What is the RBOB / Brent Crack Spread?

Conversely, during the winter months, gasoline demand generally declines, which can result in lower prices. The OPIS Spot Ticker provides real-time, accurate fuel price information for gasoline, diesel, jet fuel, and other refined products in all U.S. markets for a more profitable fuel transactions. There are two components to the profit margin that a refiner can achieve.

  • 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.
  • Choose the FREE customized information you would like to receive from the world-leading provider of news, data, and analysis for the energy, chemical and environmental commodity markets.
  • Environmental regulations, such as those dictating fuel composition and emissions standards, play a significant role.

An ongoing trade battle between the United States and China has magnified the impact of tariffs… 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. So, OPIS spot market editors see a lot more Reformulated Blendstock for Oxygenate Blending (RBOB) trading in the New York Harbor region.

Gasoline represents nearly half of the petroleum products produced, which ranks it as the number one product recovered during the refining process. Changes in environmental regulations, such as stricter emission standards or government mandates regarding the use of ethanol in gasoline, can have a significant impact on RBOB gasoline prices. 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. Unlike conventional gasoline, which is a finished product ready for consumption, RBOB is an unfinished gasoline blendstock. It does not contain ethanol and must be mixed with it (usually in a 10% blend) before it is sold as finished gasoline.

Seasonal Demand Patterns

This requires refiners to substitute more expensive components into gasoline. Low Volatility ETFs invest in securities with low volatility characteristics. These funds tend to have relatively stable share prices, and higher than average yields.

Light components include gasoline, which is condensed from a gas back into a liquid. The role of the refiner should not be underestimated as it allows crude products to be altered into a consumable good such as gasoline, diesel fuel or jet fuel. The refiner, just like the producer and consumer is incentivised by profits. Fortunately, traders can evaluate refiners profits by analyzing the margins they produce.

It is common because it is considered better for the environment and is required in some areas. 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. Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. 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.

Refinery Mixology: What’s in Your Gasoline?

The RB contract is closely tied to the price of crude oil and other energy markets. In financial markets, RBOB is traded as a commodity, with futures contracts available on exchanges like the New York Mercantile Exchange (NYMEX). These contracts provide a mechanism for managing financial risk, as participants hedge against price volatility. RBOB futures pricing is influenced by crude oil prices, refining margins, and geopolitical events, all of which are closely monitored by traders and analysts. RBOB is integral to the gasoline supply chain, acting as a precursor to the finished gasoline that fuels vehicles worldwide. This blending process ensures compliance with the Clean Air Act, which reduces pollutants such as volatile organic compounds and nitrogen oxides.

But MTBE, while not classified as a human carcinogen, is suspected to be a potential human carcinogen at high doses. 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 ground. A crack spread is the difference between the wholesale price of a refined petroleum product such as gasoline and the price of crude oil. Arbitrage opportunities may arise when there is a price discrepancy between RBOB gasoline futures and the physical gasoline market.

What is RBOB Gasoline?

Traders can exploit these differences by simultaneously buying and selling RBOB gasoline contracts or other related commodities, such as crude oil or ethanol. This strategy requires careful monitoring of both the futures market and the physical market for gasoline to identify price inefficiencies. During summer, increased travel typically drives up gasoline demand, resulting in higher RBOB prices. Refineries may undergo maintenance or switch production blends, temporarily reducing supply and elevating costs. Geopolitical events, including unrest in oil-producing regions, can disrupt supply chains and create price volatility.

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.

That’s why you’ll often see ethanol listed along with gasoline and diesel in rack prices. The national average price of a gallon of regular gasoline is still over $3, and no state has an average price below $2.60. But since mid-April, President Donald Trump has falsely claimed, repeatedly, that gasoline prices “hit $1.98 a gallon” in multiple states.

While both types of gasoline will fuel your car, RBOB is better for the environment due to its lower emissions. 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. The swing trading patterns chart above shows the weekly average import volume, in thousands of barrels, of RBOB (with special blending components for blending with ethanol) into the PADD 1—Northeast area.

Role of Refineries

The term crack spread describes the difference between the value of gasoline and crude oil. This activity is known as the downstream process of avatrade review oil and gas companies. In the refining process, crude oil is heated and introduced into the distillation tower. Liquids and gases are separated into components by weight and boiling point. The lightest components, such as gasoline rise to the top while the heaviest components, such as residual oil, fall to the bottom.

We’d also note, as we’ve written before, that presidents don’t control gasoline prices, as Trump’s comment suggested. The price is mainly determined by the cost of crude oil, which is set on the global market based largely on supply and demand. Methanol, derived from natural gas, and isobutylene from the butane obtained in the crude oil refining process, are reacted together to form MTBE. Refiners can add it directly into the blending stream as gasoline leaves the refinery.

Contract size is 42,000 gallons (1,000 barrels) quoted in US Dollars and Cents per gallon. 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. From an investing perspective, RBOB gas is important because it’s the benchmark for gasoline Blue chip companies list futures.