What is the RBOB Brent Crack Spread and How is it Used in Energy Trading?

what is rbob

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. The RBOB gasoline futures contract is settled by physical delivery.

Long ago, in the bad old days when our cars were big, fuel was cheap, and we actually put lead in the gasoline, there was conventional gasoline. If these storms shut down refineries, then the United States, the world’s largest consumer of gasoline, will have to seek new sources for petroleum products. Trading in gasoline is a way to express a bullish view on crude oil. If the global economy grows at a strong rate, then eventually there may be an insufficient supply of fossil fuels available to meet demand. Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of gasoline futures rises above the strike price by an amount greater than the premium paid for the contract.

Gasoline Basics

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.

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, complete guide to etfinance crude oil is heated and introduced into the distillation tower. Liquids and gases are separated into components by weight and boiling point.

The contract trades globally on 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 how to trade bull and bear flag patterns make a play on our global addiction to fossil fuels.

The Ingredients of Gasoline

  1. Futures involve leverage, which can sink a whole account in days with relatively small moves.
  2. One of the most well-known refinings crack spreads is the RBOB/Brent crack spread.
  3. To generate an “apples to apples” comparison, the crack is quoted in US dollars per barrel.
  4. CFD traders, therefore, have direct economic exposure to the commodity.
  5. The value of a CFD is the difference between the price of gasoline at the time of purchase and the current price.

Weak economic conditions could cause gasoline and many other commodity prices to suffer. Burning gasoline creates pollution and may contribute to global warming. As these concerns intensify, strong competition from greener energy sources might emerge. Like any other commodity, natural gas is influenced by the forces of supply and demand.

what is rbob

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.

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 Options

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.

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 abshire smith broker review gases and global climate change.

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.

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.

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.

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