4 Factors You Didn’t Know About RBOB

04 Oct 4 Factors You Didn’t Know About RBOB

So this may give you some insight into what retail gas prices will be in a few days. For example, since many of the refineries for gasoline are located in the U.S. Gulf Coast region, weather issues in that area can drive up the price for RBOB. Another important factor to consider is that gasoline is heavily taxed in many jurisdictions. Oil refineries separate out the different chains by heating the crude oil to different vaporization points, and then distilling the resulting vapors.

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. 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. Essentially, refiners want a strong positive spread between the price of a barrel of oil and the price of its refined products; meaning a barrel of oil is significantly cheaper than the refined products.

Producing reformulated gasoline using ethanol presents problems for refiners. Ethanol affects nitrogen oxides (NOx) and toxic emissions as well as Volatile Organic Compounds (VOCs). For RFG (Reformulated Gasoline) to meet VOC requirements, the finished blend must have a low Reed Vapor Pressure (RVP), generally less than 7.0 psi during the summer. 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.

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The tanks and piping systems of most gasoline stations today are constructed out of fiberglass and corrosion-resistant plastics. And, a protective layer of plastic lines the insides of gasoline delivery trucks. Say you want to buy an RBOB contract when the price is around $2.30 per gallon. That means you only need 12% of the total investment down to buy the contract on margin.

Reformulated Blendstock for Oxygenate Blending

Excludes review: investing in the next big thing conventional gasoline blendstocks for oxygenate blending (CBOB). 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 / Brent crack spread describes the difference between the price of RBOB gasoline and the price of Brent crude oil. RBOB Gasoline is quoted in US cents per gallon and Brent crude oil is quoted in US dollars per barrel. To generate an “apples to apples” comparison, the crack is quoted in US dollars per barrel.

Using a Crack Spread to Hedge Price Risk

Cracking is a process whereby hydrocarbon molecules are broken up by heat and pressure into lighter molecules. There are various forms of this process, including thermal cracking (the most popular) and catalytic cracking. Other production/refining methods include polymerization, alkylation, and isomerization.

While we refer to the liquid as “gasoline” in the U.S., many other parts of the world know it by the term “petrol”, or sometimes “petrogasoline”. 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. Drivers may think that crude oil goes into a refinery and gasoline comes out. Mandated by the EPA, ethanol is the leading oxygenate added to gasoline in the United States. The federal government supports the ethanol just2trade review industry through subsidies given to farmers and manufacturers.

• The most prolific uses of RBOB gasoline is as fuel for various products such as cars, lawn mowers, generators, pressure washers, and many other common household appliances.
• The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices.
• Aside from its health hazards, gasoline has also long been under the gun for contributing to greenhouse gases and global climate change.
• But its application extends beyond that industry to such uses as paint solvents, among others.

What’s the Difference Between RBOB and CBOB?

Crude oil is composed of a number of different hydrocarbons, or long chains of molecules. Longer chains make heavier hydrocarbons, as well as higher boiling points. Fluctuations in global demand and how refineries respond to changes in demand can materially affect gasoline prices. The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices. Oil refiners look at crack spreads when making production decisions.

So there are other crack spread plays where you buy three oil futures and then match the distillates mix more closely, as two barrels worth of gasoline contracts and one worth of heating oil, for example. forex broker To mitigate pricing risks, refiners use futures to hedge the crack spread. Futures and options traders can also use the crack spread to hedge other investments or speculate on potential price changes in oil and refined petroleum products.

The price for the RBOB gasoline futures contract is quoted in U.S. dollars and cents. The minimum price tick for RBOB is 0.0001, equivalent to a movement of $4.20 for one contract. The initial margin to hold one futures contract is $4,460, with a maintenance margin of $4,060, but these margin amounts are subject to modification by the CME based on the volatility of the contract. A typical 42-gallon barrel of crude oil yields 45 gallons of petroleum products. Gasoline represents nearly half of the petroleum products produced, which ranks it as the number one product recovered during the refining process. Refineries heat crude oil at temperatures of several hundred degrees and place the boiling liquid into distillation columns called stills.