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Excludes 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.
After it is distilled from petroleum, RBOB is blended with ethanol to produce reformulated 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. When the crack spread is negative there is no incentive for refiners to purchase and refine Brent oil. This generally occurs during a recession or Brent oil is artificially buoyed by supply disruptions. When the crack spread is elevated and the price is well above the cost for refiners to convert Brent into RBOB, there is Forex divergence a large incentive to purchase and refine as much crude oil as possible. The producers search for energy which includes crude oil and natural gas.
What is RBOB Gasoline?
- There are various forms of this process, including thermal cracking (the most popular) and catalytic cracking.
- Sometimes, detergents or other additives are blended into gasoline before it hits retail stations—those additives are a way that fuel brands differentiate themselves with customers.
- These different chains are blended together in various proportions to provide a consistent product for motor fuel.
- The margins on calendar spreads are lower because the two contracts have a high degree of correlation and generally move in the same direction.
- Light components include gasoline, which is condensed from a gas back into a liquid.
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 industry through subsidies given to farmers and manufacturers.
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.
Reformulated Gasoline Blendstock for Oxygenate Blending (RBOB) Prices: Regular Gasoline: Los Angeles (WRGASLA)
RBOB gasoline often goes by the names gasoline, petro gasoline or petrol. RBOB is an acronym for “Reformulated Gasoline Blendstock for Oxygen Blending”. This type of gasoline is used as the benchmark for gasoline trading on the Chicago Mercantile Exchange. The term “reformulated” describes gasoline that does not have any MTBE “Methyl tert-butyl ether”. The Middle East used to have a stranglehold on the top ten producers worldwide, rfp software development but the U.S. recently surpassed the region’s output. For the most part, this list contains both emerging and frontier markets, which is what makes gas prices so volatile.
Crack Spread: What it is, How to Trade It
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.
That’s why you’ll often see ethanol listed along with gasoline and diesel in rack prices. Blendstocks are blended with other liquids, such as ethanol, to make finished gasoline. Gasoline is similar in that it has multiple components that make up the gasoline recipe. At the end of that recipe you have two types of almost finished gasoline called Conventional Blendstock for Oxygenate Blending and Reformulated Blendstock for Oxygenate Blending. 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?
In investing, RBOB gas is the benchmark for gasoline on the futures market. 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. RBOB (Reformulated Blendstock for Oxygenate Blending) is a specially produced reformulated gasoline blendstock intended for blending with oxygenates downstream of the refinery where it was produced.
The alcohol in wine, beer, and that fine single-malt scotch is the same ethanol that is blended into our gasoline. Leading up to 1990, the wintertime pollution over a number of major metropolitan areas caused concern about the levels of sulfur and different unburned hydrocarbon compounds in automobile exhaust. The cold air allowed engines to run cooler, creating more unburned hydrocarbons.
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.
The concern is that MTBE gets into the water supply from leaking underground storage tanks or from gasoline spilled onto dowmarkets broker video reviews the ground. Investors can also trade puts and calls on RBOB gasoline futures. Certain options strategies, like vertical spreads, have predefined profits and losses. Importantly, however, RBOB gasoline futures options do not see a great deal of trading activity, and this lack of liquidity makes these contracts less than ideal for aggressive options trading strategies. Prices for RBOB gasoline futures logically have a high degree of correlation with crude oil since gasoline is distilled from crude. Thus, some of the global supply and demand factors for crude oil also apply to RBOB.
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 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.
