Last Updated on 21 September, 2020 by Therobusttrader

Gasoline, also known as petrol or Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline, is a flammable product made from refining crude oil. It is primarily used as a fuel in spark-ignited internal combustion engines. RBOB gasoline futures contract is very popular among futures traders following the ban on MTBE-containing gasoline.

A gasoline futures contract (RB) is equivalent to 42,000 gallons or 1,000 barrels of gasoline, and the price quotation is in U.S. dollars and cents per gallon. The minimum price fluctuation is 1/100 of a cent per gallon or $4.2 per contract.

The commodity is obtained by fractional distillation of crude oil. On average, a barrel (42 U.S. gallons or 160 liters) of crude oil yields about 19 U.S. gallons (72 liters) of gasoline, in addition to other refined products, but this varies depending on the type of crude oil. RBOB gasoline is blended in a way that allows for the addition of 10 percent fuel ethanol. The RBOB gasoline futures contract is the new benchmark for gasoline futures.

Gasoline Futures Contract Specifications
Symbol
RB
Exchange
CME
Tick Size
$4.20
Point Value
$42,000
Contract Size
42,000 gallons
Contract Months
All months
Trading Hours
Sunday – Friday 6:00 p.m. – 5:15 pm ET with a 45-minute break each day beginning at 5:15 pm ET
Settlement
Deliverable
Last Trading Day
Trading in a current delivery month ends on the last business day of the month before the delivery month.

 

Uses of Gasoline

Gasoline is the fuel for internal combustion engines, so it is an essential commodity in many homes as people need it to perform important duties, such as going to work or powering their machines. The main uses of gasoline can be classified into the following:

Transportation: In most countries, gasoline is the only fuel for cars, tricycles, motorcycles, and light-duty trucks. So, it is very important in the transportation industry.

Powering equipment: Some equipment used for forestry, farming, landscaping, and construction purposes are fueled with gasoline.

Alternative power generation: In some places (like Nigeria) where power generation is a major problem, gasoline-powered generators are commonly used to power homes and offices, including hospitals and other essential services.

The Largest Producers and Consumers of Gasoline

Gasoline is produced in oil refineries, where crude oil is separated into its component hydrocarbons or fraction through a process called fractional distillation. Most countries have oil refineries to produce gasoline and other petroleum-based products for domestic consumption. However, a few countries still import refined petroleum products, like gasoline, diesel, and aviation fuel.

The United States produces and consumes the largest quantity of gasoline in the world. Owing to its huge population, China is also another large producer and consumer of the commodity. Other top producers include Japan, Russia, India, Canada, Germany, Brazil, Mexico, France, and the United Kingdom.

Why Trade Gasoline Futures Contracts

Why Trade Gasoline Futures?

Why Trade Gasoline Futures?

There are various reasons for trading gasoline futures contracts. Some people trade the contract for speculative purposes, while others use it as a hedging tool against inflation or to diversify their investment portfolio. The direct stakeholders in the production or utilization of gasoline come to the futures market to manage their price risk.

Hedging against price fluctuation: The key players in the gasoline market are the refining companies and the distributors. While crude oil refiners sell gasoline futures contracts to secure a good price for their product, the distributors buy the contract to ensure a stable supply of the commodity.

Speculation: Apart from the gasoline producers and distributors, the majority of traders in the gasoline futures market trade it purely for speculative purposes. These traders try to benefit from the regular fluctuations in gasoline futures prices.

Diversifying portfolio: To most investors and fund managers, the commodity market presents a way to diversify their investment portfolio across a wider range of asset classes, which helps to reduce the market risk on their portfolio. Gasoline futures contracts are one of the most-traded energy commodities in the futures market, so it has enough liquidity.

Inflation hedge: As with other commodities, gasoline prices rise when there is rising inflation. So, buying gasoline contracts can be a good means of protecting one’s wealth from the effects of inflation.

How Gasoline Futures are Traded

Gasoline futures contracts are offered on the Intercontinental Exchange (ICE), Tokyo Commodity Exchange (TOCOM), and the New York Mercantile Exchange (NYMEX), which is a member of the Chicago Mercantile Exchange (CME) Group. The contracts can be traded from any part of the world through the CME Globex electronic trading platform.

On the CME Group, an RBOB futures contract (RB) is equivalent to 42,000 gallons or 1,000 barrels of gasoline, and the price quotation is in U.S. dollars and cents per gallon. The minimum price fluctuation is 1/100 of a cent per gallon or $4.2 per contract.

Contracts are listed for every month of the current year and the next calendar year. The last trading day in a current delivery month is the last business day of the month preceding the delivery month. At expiration, the contract is settled by physical delivery. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.

To start trading RBOB gasoline futures, all you need is to create an account with the exchange through your futures broker and deposit the required margin. A futures contract is a leveraged instrument, so you need not have the full dollar worth of the contract to start.

However, you should be cautious about leveraged instruments — they can make you more money, but you can also lose more than you planned.

Gasoline Futures Trading Strategies

Gasoline Futures Trading Strategy

Gasoline Futures Trading Strategy

Trading strategies on the gasoline futures market often add nicely into a portfolio consisting of trading strategies on other futures markets. Most times you will see your drawdown decrease, while the profits increase.

As to the types of tradings strategies that work on the gasoline futures market, you may want to look into trend following strategies, where we’ve had quite some success previously.

If you’re interested in edges and strategies to use as inspiration for your own strategies, be sure to check out our edge membership!

Factors That Affect Gasoline Futures

There are several factors that can affect the prices of gasoline futures contracts, but these are the common ones:

The price of crude oil: Crude oil prices significantly affect the price of gasoline because crude oil is the raw material for making gasoline. Thus, any factors that affect crude oil prices will also affect gasoline prices.

Cost of refining: Of course, the cost of refining crude oil and the efficiency of the refineries can affect gasoline prices. For instance, a new technology that lowers the cost of refining will bring down gasoline prices.

Political events: When there is a political crisis in any of the major oil-producing countries, gasoline prices tend to go up. In fact, major announcements from OPEC do affect gasoline prices. Domestic policies, such as taxes, can also affect gasoline prices.

Demand and supply imbalances: An imbalance in the demand and supply of the commodity will affect the prices. For example, during winter, gasoline demand declines, bring down gasoline prices.

Gasoline Futures Seasonality

Here is a seasonal chart of the gasoline futures market. 

Gasoline Futures Seasonality

Gasoline Futures Seasonality

Source

Conclusion

Gasoline is an essential commodity as people need it to fuel their cars, motorcycles, small trucks, and even farm equipment. Several commodity exchanges, such as the ICE, CME, and TOCOM offer gasoline futures contracts.

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