Internal combustion engines, like those found in automobiles, burn fuel in controlled processes. 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. CARBOB is even more expensive, and is the main reason why California gasoline prices are typically higher than anywhere else in the country. Since ethanol may increase the NOx, other additives and formulations are needed to meet higher air quality standards in California, which has a lower NOx limit. RBOB stands for Reformulated Blendstock for Oxygenate Blending, a component that is used to create reformulated gasoline.

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A single contract represents 42,000 gallons with a minimum fluctuation of $0.0001 per gallon. Listed contracts conduct trading throughout the next 36 consecutive months. RBOB is more expensive to refine—more energy and more effort are required to pull some of the additional hydrocarbons out of the fuel.

Role of Refineries

• Crude oil is composed of a number of different hydrocarbons, or long chains of molecules.
• Gasoline represents nearly half of the petroleum products produced, which ranks it as the number one product recovered during the refining process.
• As a result, around 30% of the U.S. market requires gasoline to be reformulated.
• If a position is not liquidated, the holder of a long contract might be responsible for taking delivery of 42,000 gallons of gasoline.
• Listed contracts conduct trading throughout the next 36 consecutive months.

Even if you aren’t looking to trade the crack spread itself, it can act as a useful market signal on potential price moves in both the oil and refined product market. 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. 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. RBOB is a distillation of hydrocarbons from crude oil that is used to produce gasoline fuel.

Top Countries by Gasoline Production

The map above illustrates a color-coded patchwork of different blends of reformulated gasoline, each one a specific cocktail for the climate. This map predates the complete phase-out of MTBE, but it still accurately depicts the wide variety of reformulation required at the local level. Ethanol needs to be mixed into gasoline at the local terminal racks, just before it’s delivered. The ethanol and gasoline are splash blended as the tanker truck fills before making the final trip to the gasoline station. From this point on in the supply chain, the corrosive nature of ethanol is not a concern.

Each fraction has molecule chains of different lengths, and each of these chains has a different boiling point. An ongoing trade battle between the United States and China has magnified ganna basics the impact of tariffs… Gasoline is one of the most widely known and used commodities in the world, primarily utilized for fuels.

WTI is quoted on the Chicago Mercantile Exchange for pickup in Cushing Oklahoma. This area is landlocked and therefore requires shipment via pipeline or rail. 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 javascript image manipulation benchmark gasoline futures contract. 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.

RBOB gas contracts are traded on the Chicago Mercantile Exchange. You can get access to trading them through most brokerage firms and futures trading portals. 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.

Using a Crack Spread to Hedge Price Risk

Futures involve leverage, which can sink a whole account in days with relatively small moves. This requires refiners to substitute more expensive components into gasoline. In this guide to understanding RBOB gasoline as a commodity, we’ll explain why it’s valuable, how and where it’s made, which countries produce the most gasoline, and explain what drives its price. The spread between Brent and WTI has been as high at $28 per barrel and as low as -$3.6 per barrel. When the spread is elevated there is an incentive for US refiners to purchase WTI over Brent. Traders venturing into the futures market for the first time need to consider the inherent risks…

Refiners have been adding MTBE to gasoline since 1979 to raise gasoline octane ratings and help prevent engine knocking. MTBE also displaces gasoline components such as aromatics— e.g., benzene and sulfur—optimizing the oxidation during combustion. 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 image manipulation 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.