Gasoline Futures Trading Basics

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Gasoline Futures Trading Basics

Gasoline futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of gasoline (eg. 50 kiloliters) at a predetermined price on a future delivery date.

Gasoline Futures Exchanges

You can trade Gasoline futures at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Gasoline futures prices are quoted in dollars and cents per gallon and are traded in lot sizes of 42000 gallons (1000 barrels).

TOCOM Gasoline futures are traded in units of 50 kiloliters (13210 gallons) and contract prices are quoted in yen per kiloliter.

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Gasoline Futures
(Price Quotes)
RB 42000 gallons
(Full Contract Spec)
USD 9,450 (approx. 20%)
(Latest Margin Info)
TOCOM Gasoline Futures
(Price Quotes)
50 kiloliters
(Full Contract Spec)
JPY 210,000 (approx. 13%)
(Latest Margin Info)

Gasoline Futures Trading Basics

Consumers and producers of gasoline can manage gasoline price risk by purchasing and selling gasoline futures. Gasoline producers can employ a short hedge to lock in a selling price for the gasoline they produce while businesses that require gasoline can utilize a long hedge to secure a purchase price for the commodity they need.

Gasoline futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable gasoline price movement. Speculators buy gasoline futures when they believe that gasoline prices will go up. Conversely, they will sell gasoline futures when they think that gasoline prices will fall.

Learn More About Gasoline Futures & Options Trading

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RBOB Gasoline Futures

RBOB is an acronym for “Reformulated Gasoline Blendstock for Oxygenate Blending”. The new popularity of RBOB in the exchanges owes much of its success to state legislation banning gasoline with MTBE. This chemical was found in unleaded gasoline and posed a threat for people and wildlife because it polluted groundwater sources. As a result, RBOB, which does not contain MTBE, has quickly grown in popularity with futures traders, and it has also become the new benchmark gasoline contract.

RBOB Gasoline Contract Specifications
Contract Size 42,000 gallons
Price Quotation U.S. dollars and cents per gallon.
Trading Hours CME Globex: Sunday – Friday 6:00 p.m. – 5:15 pm ET with a 45-minute break each day beginning at 5:15 pm ET
CME ClearPort: Sunday – Friday 6:00 p.m. – 5:15 pm ET with a 45-minute break each day beginning at 5:15 pm ET
Minimum Price Fluctuation $0.0001 per gallon
Product Code CME Globex: RB
CME ClearPort: RB
Clearing: RB
Listed Contracts Monthly contracts listed for the current year and the next 3 calendar years +1 month. Monthly contracts for a new calendar year will be added following the termination of trading in the December contract of the current year.
Settlement Method Deliverable
Last Trade Date Trading in a current delivery month shall cease on the last business day of the month preceding the delivery month.
Trade At Marker Or Trade At Settlement Rules Trading at settlement is available for spot (except on the last trading day), 2nd, 3rd and 4th months and subject to the existing TAS rules. Trading in all TAS products will cease daily at 2:30 PM Eastern Time. The TAS products will trade off of a “Base Price” of 0 to create a differential (plus or minus 10 ticks) versus settlement in the underlying product on a 1 to 1 basis. A trade done at the Base Price of 0 will correspond to a “traditional” TAS trade which will clear exactly at the final settlement price of the day.

TAM trading is analogous to our existing Trading at Settlement (TAS) trading wherein parties will be permitted to trade at a differential that represents a not-yet-known price. TAM trading will use a marker price, whereas TAS trading uses the Exchange-determined settlement price for the applicable contract month. As with TAS trading, parties will be able to enter TAM orders at the TAM price or at a differential between one and ten ticks higher or lower than the TAM price. Trading at marker is available for spot month on the last trading day.

RBOB Gasoline (RB) spot, 2nd and 3rd months and nearby/second month, second/third month and nearby/third month calendar spreads.

Settlement Procedures RBOB Gasoline Futures Settlement Procedures
Exchange Rules These contracts are listed with, and subject to, the rules and regulations of NYMEX
Source: CME Group

RBOB Gasoline Facts

Gasoline is made up of hundreds of hydrocarbons that allow for its use as a fuel for mainly car engines and other internal-combustibles. Petroleum crude oil is the most popular and cheapest means of a fuel source because of a refinery’s ability to turn more than half of a crude oil barrel into gasoline. There are three steps in the refining process that include separation, conversion, and treatment. There is an additional process called hydro treating that eliminates sulfur from the gasoline product. Currently, hydro treating is only required in California.

Octane measures the ability of gasoline to withstand common “engine knock”. That is why gas stations have 3 grades of fuel including regular, mid-grade, and premium, with octane and price increasing with each grade. This does not necessarily mean that the fuel will burn any better for a car engine, but just at a slower rate, which helps decrease that knocking.

The passage of the Clean Air Act of 1990 ensured that ethanol would be added to the gasoline supply to reduce harmful emissions that are released into the air from engine exhausts.

Last updated September 2020

Additional Info

Recent Posts on RBOB Gasoline

  • Beyond the Spotlight: Yen, Gold, RBOB – May 20, 2020 (5/20/2020) – Beyond the Spotlight for the week of May 20, 2020 covers the Japanese Yen, Gold, Unleaded Gasoline markets. Watch now to look ahead with us, while potentially creating additional trading opportunities for yourself.
  • Trendline Holds in RBOB…time to go to work. (8/10/2020) – Let’s go! This market isn’t for everyone. its a BIG contract and there are NO minis
  • Trade Spotlight: Options (Unleaded Gasoline) (9/28/2020) – This is a sample entry from Don DeBartolo’s email newsletter, Trade Spotlight: Options, published on Wednesday, September 27, 2020. RBOB Bear Put Spread There is a trade opportunity based on Trend Line breakout today in the Unleaded Gasoline (RBOB) futures market. There is a Double Top Formation with highs at 1.6258 (1/04/17) and 1.6822 (9/29/17).… Read more.

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4 Factors You Didn’t Know About RBOB

RBOB gasoline futures contract is listed on the Chicago Mercantile Exchange (CME) under the futures symbol RB. Although it does not receive as much general investor interest as crude oil futures, the contract serves as an essential vehicle for market participants seeking to speculate and hedge in the gasoline market.

What Is Gasoline?

Gasoline is a byproduct of the refining of crude oil. Crude oil is composed of a number of different hydrocarbons. The hydrocarbons have chains of molecules of different lengths. The longer the chains, the heavier the hydrocarbon. The different chain lengths have higher boiling points as they get longer.

Key Takeaways

  • Investors can hedge and speculate with RBOB gasoline futures, which are listed on CME under ticker RB.
  • Futures contracts are bought on margin and this added leverage can magnify gains or losses.
  • Since RBOB gasoline futures involve the delivery of 42,000 gallons of gasoline per contract, traders want to close any positions before key delivery dates.
  • Some traders prefer calendar spreads rather than long or short futures positions because the risk (and margin requirements) are much less.
  • Lastly, options strategies, such as vertical spreads, can be initiated to participate in the next move in gasoline.

Oil refineries separate out the different chains by heating the crude oil to certain vaporization points. Gasoline is created by the vaporization of chains with boiling points below that of water. These different chains are blended together in various amounts to provide a consistent product for gasoline.

What Fuels Gasoline Prices?

RBOB stands for reformulated blendstock for oxygenate blending. 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.

Still, the RBOB market has its own supply and demand factors. 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. This can also impact supply and demand for RBOB.

How Is Gasoline Traded?

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, which works out to a price move of $4.20 for one contract. The contract unit is for 42,000 gallons or 1,000 barrels. 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.

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 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.

Leverage, Calendar Spreads, and Options

Leverage when trading futures with margin can magnify both profits and losses. Alternatively, investors can use futures spreads or calendar spreads, which involve the simultaneous trading of a long futures position in one month and a short futures position in another month (or vice versa). The margin on a calendar spread—for example, buying the April futures contract and selling the May futures contract—is $910 and much less than the margin for just a long or short futures position.

This margin amount with calendar spreads is less because the two contracts have a high degree of correlation and generally move in the same direction together. However, one contract might move more than the other due to market conditions and the goal behind the strategy is to profit from changes in the value in one contract relative to the other, although losses are possible when markets across the specific delivery months do not move as anticipated.

Lastly, investors can trade options or options spreads because puts and calls on RBOB gasoline futures are available for trading as well. 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.

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