What is the RBOB Brent Crack Spread and how is it Use in Energy Trading?

what is rbob gasoline

MTBE gives water an unpleasant taste and can render large quantities of groundwater unfit for human consumption. The concern is that MTBE gets into the water supply from leaking underground storage tanks or from gasoline spilled onto the ground. 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. The refinery blends each of these process streams into gasoline. The weekly chart of the RBOB Brent crack spread shows that at times the crack was as high as $28 dollars per barrel and as low as -$5.5 per barrel.

  1. The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices.
  2. Increasing demand for gasoline in Asia, Latin America and the Middle East often outpaces supply from those regions.
  3. The RBOB / Brent crack spread describes the difference between the price of RBOB gasoline and the price of Brent crude oil.
  4. This makes gasoline one of the most important and well-known commodities in the world.

In the technical language of the industry, it is a blending component, or a blendstock. 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. https://www.day-trading.info/ From this point on in the supply chain, the corrosive nature of ethanol is not a concern. 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.

What Is RBOB Gasoline?

The federal government supports the ethanol industry through subsidies given to farmers and manufacturers. Today, ethanol is used primarily as motor fuel and a fuel additive. One of the earliest biotechnologies employed by man, the fermentation of sugar into ethanol, has been with us since prehistory.

In the refining process, crude oil is heated and introduced into the distillation tower. In the tower, oil is broken down into various petroleum products. Liquids and gases are separated into components by weight and boiling point. The lightest components, such as gasoline rise to the top while the heaviest components, such as residual oil, fall to the bottom.

what is rbob gasoline

Seasonal pollution requirements for gasoline can also lead to disparities in pricing as can weather-related disruptions to refinery operations. Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline is a fuel product made from refined crude oil. RBOB gasoline often goes by the names gasoline, petro gasoline or petrol. The chart above shows the weekly average import volume, in thousands of barrels, of RBOB (with special blending components for blending with ethanol) into the PADD 1—Northeast area. Do you notice that there are no imports prior to the middle of 2004? At this point, the gasoline that comes out of the refinery is not a finished product.

RBOB is a distillation of hydrocarbons from crude oil that is used to produce gasoline fuel. After it is distilled from petroleum, RBOB is blended with ethanol to produce reformulated gasoline. The refiner must remove light molecular weight, high RVP components, which changes the RFG’s distillation https://www.investorynews.com/ characteristics. This requires the removal of some heavy molecular weight and high boiling point components as well. The RBOB gasoline futures contract is settled by physical delivery. This means most investors want to liquidate positions prior to the expiration of the contracts.

If the price of gas rises past $2.30, you can sell your futures at a profit. If the price of gas drops below $2.30, you would sell the futures at a loss but save money at the pump. 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.

Enter Stage Left – Ethanol

Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. Increasing demand for gasoline in Asia, Latin America and the Middle East often outpaces supply from those regions. Demand for gasoline has been steadily declining in Europe and the United States. Mandated by the EPA, ethanol is the leading oxygenate added to gasoline in the United States.

what is rbob gasoline

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. New technologies such as electric-powered vehicles, for example, could substantially reduce demand for gasoline.

What is Brent Crude Oil?

Here are four important facts for anyone trying to trade the gasoline futures market. RBOB is a common grade of gasoline produced by refiners in the US. This requires refiners to substitute more expensive components into gasoline. Edwin Drake, the first American to drill https://www.topforexnews.org/ for oil, discovered gasoline by accident when he was distilling oil to make kerosene for heating. Drake considered gasoline a useless byproduct of the distillation process and discarded it. RBOB is an acronym for “Reformulated Gasoline Blendstock for Oxygen Blending”.

If a position is not liquidated, the holder of a long contract might be responsible for taking delivery of 42,000 gallons of gasoline. It is safe to say that most investors do not want to take physical delivery of that much gas. Thus, investors must be aware of the different deadlines for futures contracts and offset any positions before the risk of delivery comes into play.

Methanol, derived from natural gas, and isobutylene from the butane obtained in the crude oil refining process, are reacted together to form MTBE. Refiners can add it directly into the blending stream as gasoline leaves the refinery. But MTBE, while not classified as a human carcinogen, is suspected to be a potential human carcinogen at high doses.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. Fluctuations in global demand and how refineries respond to changes in demand can materially affect gasoline prices. Crude oil varieties and the technology available for refining them can lead to different gasoline products and pricing from one refinery to the next. The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices.

This map predates the complete phase-out of MTBE, but it still accurately depicts the wide variety of reformulation required at the local level. 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 big impact on RBOB’s price because it affects the supply produced by the many U.S. refineries in the gulf.

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