R.B.O.B Gasoline – Commodity

Instrument description

One of the most important energy source that fuels the automobiles is gasoline also commonly referred to as gas although it’s a liquid fuel. The full form of R.B.O.B gasoline used for internal combustion in vehicles is Reformulated Blendstock for Oxygenate Blending gasoline, which is derived from refined crude oil. R.B.O.B. gasoline is also popularly known as Gasoline, Petrol, and Petro gasoline.

Gasoline is the leading energy source as it been used more than any other energy commodity. The primary producer and consumer of gasoline are the U.S.A., while the crude oil supplies come from Middle East Asia, the Gulf of Mexico, and Alaska. The price a consumer pays to fill gasoline in his car depends on the country you live as in crude oil-producing nations the cost of gasoline is considerably low as compared to countries that import crude oil.

Gasoline is the first product of oil refineries in the U.S.A., which also makes the U.S the global leader when it comes to gasoline production. The gasoline serves a wide purpose and mostly used to fuel cars, motorcycles, vans, trucks, boats, recreational vehicles, and even small boats. Also, multiple types of generators and power supplies use gasoline. Gasoline is also one of the fuels that are used in machines and equipment for construction, forestry, landscaping, and farming. The top five countries that produce gasoline according to (1000 barrels per day) are

1. S.A. - 8900
2. China - 2100
3. Japan - 920
4. Russia - 900
5. India - 700

History of R.B.O.B Gasoline

Gasoline was discovered fortuitously by an American named Edwin Drake, who was refining oil to make kerosene but stumbled across gasoline, but he considered it a useless by-product and disposed of it. But, the true importance of gasoline was known when automobiles were first introduced in the early 1890s. Gasoline is the essential energy source to fuel cars and other light body vehicles. Every day millions of vehicles are driven on the road that uses gasoline, and gasoline is considered quite a vital energy commodity of the world.

The R.B.O.B. gasoline is produced in big oil refineries where crude oil is separated into smaller hydrocarbon fractions, and each fraction consists of a chain of molecules with varying lengths that have a particular boiling point. The crude oil is heated at high temperatures in the oil refinery, and the resulting boiling liquid is placed in distillation columns, known as stills. The steaming process results in several products of crude oil that includes kerosene, gasoline, and also diesel fuel. However, each of the fuel is recovered at particular boiling points.

A standard 42-barrel of crude oil delivers almost 45 gallons of gasoline, kerosene, and diesel, of which half is the gasoline, which is also the most valuable product of crude oil. The quantity of gasoline is determined by the amount and availability of crude oil and the capacity of the oil refinery to process crude oil. The performance of refiners is measured by the capacity of crude oil, which can be placed in the distillation units.

The oil refiners usually view the crack spreads when deciding on the production of gasoline. A crack spread is defined as the difference between the price of crude oil and the price of gasoline or other petroleum product. The spreads are critical to measuring the price difference or margins for purifying the crude oil, and crack spreads can also denote the supply of other petroleum products.

Supply and Demand of R.B.O.B Gasoline

Gasoline is one of the most vital commodity and one which is used by everyone around the world. The supply and demand factor is key in determining the price of gasoline. In both the developed and emerging markets, there is a constant demand for gasoline to be used as fuel in vehicles. If there is a shortage in supply and demand is high, then the gasoline prices tend to rise, and when there are low demand and gasoline is in surplus, then the prices of gasoline fall. The supply/demand imbalance constantly fluctuates and affects the prices of gasoline.

How to read the price change of R.B.O.B Gasoline

Gasoline is traded 24 hours and 6 days a week on the Chicago Mercantile Exchange (CME) Globex, which is a global electronic trading platform. The symbol of gasoline on the CME Globex is ‘R.B.,’ the price quotation in USD per gallon, and the contract unit is 1000 barrels or 42000 gallons. The trading hours are 22:00 to 20:59 (GMT). The gasoline price is traded in USD/Gal where USD is for U.S Dollars, and Gal stands for gallons.

When we analyze the gasoline price chart, we see the gasoline prices trading from $1.400 to $1.800 per gallon from September 2019 to the third week of February 2020. The highest value of gasoline was $1.7038/Gal on February 19, 2020. There was a considerable drop in the price of gasoline from the last week of February, and gasoline prices fell to the lowest value of $0.6434/Gal on March 24, 2020. The gasoline prices steadily began to see Bullish trends from May 2020, and currently, the price of gasoline is $1.2570/Gal. The Bid price is $1.2591/Gal. while the Ask price is $1.2571/Gal

How to Trade R.B.O.B Gasoline

Trading in gasoline is may be quite profitable as the global economies are advancing at a rapid pace, which leads to an increase in demand for crude oil, which will increase the prices of gasoline in the commodity market. In emerging markets, people will buy more cars, which will further increase the demand for gasoline if you are planning to trade in gasoline than you must add other commodities such as metals and soft commodities in your investment portfolio.

Having a basket of commodities help to reduce the risk of financial losses and also from large price swings of a particular commodity. The common ways to trade in gasoline are Exchange Traded Funds (ETFs), Futures Contracts, Options, Contract for Difference (CFD), and Shares.

You can trade gasoline by using Futures contract, which is a derivative tool that allows you to place leveraged bets on the prices of gasoline. The CME offers a Future gasoline contract of 42000 gallons of R.B.O.B. gasoline per contract. The contract trades globally on the CME Globex. The contract is quoted monthly, and at expiration, you must accept the physical delivery of gasoline. While trading Futures contract, you must also pay for the storage costs and interest rates.

One of the popular ways to trade gasoline these days is through CFD, which allows you to speculate on the underlying prices of gasoline from opening to closing of the trade. There are many advantages of trading CFDs such as

• Trading with leverage which means with a leverage 1:10 if you want to trade $1000 worth of gasoline, then you only have to deposit $100 to open a trade
• You will be speculating on an underlying asset which means no need to buy and store the gasoline physically
• You can trade in both directions which is going Long or Short
• Chance to magnify your gains, but there is a certain risk involved if your prediction on price movements go wrong.

Another way to invest in gasoline is by buying shares of popular companies that extract, refine, and sell crude oil and other petroleum products. The oil companies generate a vast amount of revenue annually and pay handsome dividends to the shareholders. Some of the famous oil companies to buy a share from includes ExxonMobil, Chevron, Royal Dutch Shell, British Petroleum (BP), and Total SA.

What causes the price change of R.B.O.B Gasoline?

Gasoline is regarded as one of the essential commodity and one which is widely followed by general consumers who drive their car every day. The prices of gasoline fluctuate quite regularly and are heavily correlated with the prices of crude oil in the commodity market. Crude oil accounts for 65% of the gasoline price, refinery, and transportation costs are 13%, while transportation to a gas station is 11%.

The price of gasoline you have to pay also depends on the type of gasoline you are putting in your car. The higher octane fuel tends to be costly, and other grades of gasoline include premium, midrange, and regular. The factors that play a crucial role in determining the gasoline prices

• Crude Oil Prices

Gasoline is a product of crude oil, so the supply and price of crude oil directly impact the subsequent price of gasoline along with other petroleum products such as kerosene and diesel. The price of crude oil itself is affected by many economic factors such as political events, the value of U.S Dollars, weather patterns, and the use of alternative energy sources such as hydroelectric, solar, and wind power.

• Seasonal Demand

Gasoline is used as fuel in vehicles all year round, but there is seasonal demand as in summers, the prices tend to rise, and in winters, gasoline prices fall due to inclement weather. The seasons also affect the formulation requirements for gasoline. In the U.S the rules state that gasoline sold in summer must be less susceptible to evaporation which compels the refiners to use more expensive components in gasoline production

• Refining Costs

Processing crude oil to get gasoline and other petroleum products are not simple and require the use of heavy machines and electricity. The cost of production considerably impacts the rate of gasoline. There can be a difference in costs from one refinery to another. The pollution requirements and changing weather patterns also affect the operation of oil refineries and subsequent gasoline prices.

• Distribution Costs

The supply and processing of crude oil mainly contributes to gasoline prices, but another major aspect is transporting gasoline from oil refineries to gas stations and other storage locations. The cost of transportation is high for a place that is located far from the oil refinery. The gasoline sold in affluent areas tends to be higher prices of gasoline. Additional costs also include the cost of adding ethanol to gas as required by law

• Global Warming

In recent years there have been drastic weather patterns been observed all over the world. The disruption in an oil refinery can lead to price hikes of gasoline. In the last few years, the frequency and intensity of storms and hurricanes have increased in the U.S, and any disruptions in oil refineries will result in a sudden surge in gasoline prices globally.

• Political News and Events

Crude oil is a global commodity, and most of the extraction is done in the Middle East Asian countries where a political turmoil can directly affect the prices of gasoline, kerosene, and diesel. The oil embargos and labor strikes can also disrupt crude oil supply and increase the prices of gasoline

• Global Demand

With the growing world population, there will be a constant demand for gasoline and even an increase in demand in places such as Asia, the Middle East, and Latin America. However, with the trend of electric cars, the gasoline demand is declining in the U.S and Europe.

Like crude oil, gasoline is also valued in U.S Dollar, and gasoline has an inverse relationship with USD. When the USD weakens, the gasoline prices rise, and when the USD strengthens, then the gasoline prices fall. The rules and regulations by OPEC (Organization of the Petroleum Exporting Countries) also influence the prices of gasoline as OPEC can limit or increase crude oil production.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.