Definition:
RBOB gasoline is a type of gasoline used in futures contracts traded on commodity exchanges as a means of speculating on oil prices.
How does RBOB gasoline work?
RBOB gasoline is a common type of gasoline used in the United States. It is popular because it is considered more environmentally friendly and is required in some areas. It is usually blended with 10% ethanol.
In investing, RBOB gasoline is the benchmark for gasoline in the futures market. Minimum contracts are equivalent to 42,000 gallons (1,000 barrels) and are traded at a per-gallon price. This means that the quoted price must be multiplied by 42,000 to determine the cost of the contract.
The price of RBOB gasoline is more sensitive to changes in supply and demand for the product. For instance, stormy weather in the Gulf of Mexico can have a significant impact on RBOB gasoline prices because it affects the supplies produced by numerous refineries in the Gulf. Drivers use more fuel in the summer, which also impacts the price due to increased demand.
Note: Generally, RBOB gasoline futures prices are lower in December and higher in April and May.
Example of RBOB gasoline
You can use the CME Group website or Nasdaq to check the current per-gallon price of RBOB gasoline.
Let’s say you want to buy an RBOB contract when the price is around $2.30 per gallon. The price of one contract is $96,600 ($2.30 × 42,000). The margin for the commodity is $11,550 at purchase. This means you only need 12% of the total investment to purchase the contract on margin.
Alternatives to RBOB gasoline
There is no easy way to invest directly in RBOB gasoline through stocks or bonds, but you can invest in stocks and bonds in the energy sector that are affected by the same economic forces. There are also options for exchange-traded funds (ETFs) focused on oil and natural gas. While buying an RBOB future can cost thousands of dollars, shares of ETFs can cost less than $20.
What does this mean for individual investors?
Futures contracts are not as commonly traded among individual investors as stocks and bonds because they are generally more difficult to analyze and trade. Futures contracts involve leverage, which can cause the entire account to collapse within days due to relatively small movements.
Individuals can trade RBOB gasoline with most brokerage firms. Remember the price: one contract is likely to be expensive even though you can buy a contract on margin. RBOB contracts also come with significant risks. If fuel prices move against you by 20% or more, it can be devastating to your portfolio.
Individuals who own businesses affected by fuel prices – such as a trucking company, for example – can use RBOB futures contracts as a hedge. If you expect a rise in fuel prices in the future, you could buy an RBOB futures contract, for example, at $2.30 per gallon. If the fuel price rises above $2.30, you can sell the futures contract for a profit. If the fuel price drops below $2.30, you will sell the futures contract at a loss but save money at the gas station.
Additionally, changes in RBOB gasoline prices lag a few days behind the price you pay at the gas station. Thus, monitoring RBOB gasoline prices can give you an idea of the direction of retail fuel prices.
Frequently Asked Questions (FAQs)
Why is RBOB gasoline important?
From an investment perspective, RBOB gasoline is important because it is the benchmark for gasoline futures contracts. Additionally, RBOB gasoline prices often move before retail station prices do.
How can you trade RBOB gasoline?
RBOB gasoline futures contracts are traded on the Chicago Mercantile Exchange. You can access trading through most brokerage firms and futures trading portals.
Source:
https://www.thebalancemoney.com/what-is-rbob-gas-6831062
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply