Furthermore, the specific requirements for RFG can vary depending on local regulations and environmental conditions, adding to the complexity of the gasoline market. 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. 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.

Oxygenates help to ensure more complete combustion, reducing carbon monoxide (CO) emissions. Finally, RFG may have reduced levels of certain aromatic hydrocarbons, such as benzene, which are known carcinogens. 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.

After it is What is Ripple 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.

Using Calendar Spreads and Options for RBOB

As a result, around 30% of the U.S. market requires gasoline to be reformulated. Here are four important facts for anyone trying to trade the gasoline futures market. 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.

Price

If ethanol is pushed through a pipeline, the water that it attracts will corrode the inside of the pipes. If it’s mixed with gasoline at the refinery, every pipe and tank that it passes through will be subjected to higher levels of corrosion. From an investing perspective, RBOB gas is important because it’s the benchmark for gasoline futures. Additionally, RBOB gas prices move before the price at the pump moves. The tanks and piping systems of most gasoline stations today are constructed out of fiberglass and corrosion-resistant plastics.

  • But it also has other applications such as removing paint or grease, and is even used in numerous pesticides and weed killers see also Invest Like Jim Rogers With These Three Agriculture Stocks.
  • There are various forms of this process, including thermal cracking (the most popular) and catalytic cracking.
  • RBOB is more expensive to refine—more energy and more effort are required to pull some of the additional hydrocarbons out of the fuel.
  • RFG is required in cities with high smog levels and is optional elsewhere.

Why is RBOB gas important?

These different chains are blended together in various proportions to provide a consistent product for motor fuel. RBOB gasoline futures are listed on the Chicago Mercantile Exchange (CME) under the futures symbol RB. Although it does not receive as much 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. The map above illustrates a color-coded patchwork of different blends of reformulated gasoline, each one a specific cocktail for the climate. This map predates the complete phase-out of MTBE, but it still accurately depicts the wide variety of reformulation required at the local level. The price for the RBOB gasoline futures contract is quoted in U.S. dollars and cents.

  • These different chains are blended together in various proportions to provide a consistent product for motor fuel.
  • Like any other commodity, natural gas is influenced by the forces of supply and demand.
  • There isn’t an easy way to invest directly in RBOB gas with stocks or bonds, but you can invest in energy sector stocks and bonds affected by the same economic forces.
  • The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security.

Among these, RBOB (Reformulated Blendstock for Oxygenate Blending) and CBOB (Conventional Blendstock for Oxygenate Blending) stand out as two prominent types. Understanding the nuances between RBOB and CBOB is crucial for anyone involved in the energy sector, from traders and distributors to consumers concerned about the environmental impact of their fuel choices. Due to gasoline’s widespread use, it has come under fire for numerous health and environmental concerns over the last few decades. From a health standpoint, the fuel stores numerous carcinogenic chemicals, and can be a danger to the general public if a leak were ever to occur. This means that storage tanks, delivery trucks, and refining plants present the most dangerous threats of the chemical being released into the environment. Aside from its health hazards, gasoline has also long been under the gun for contributing to greenhouse gases and global climate change.

Now let’s look at the import volume for the CBOB for the rest of PADD 1 that does not require the reformulation.

What exactly are oxygenates and why are they added to gasoline?

Another critical aspect of the future of gasoline blendstocks is the ongoing debate about the use of MTBE as an oxygenate. While MTBE has been effective in reducing carbon monoxide emissions, it has also been linked to water contamination issues. As a result, many states have banned or restricted the use of MTBE, leading to a greater reliance on ethanol as the primary oxygenate.

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. 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 long-term impact of this shift on gasoline formulations and emission profiles remains to be seen. Overall, the future of gasoline blendstocks is dynamic and uncertain, but it is clear that innovation and sustainability will play a key role in shaping the industry in the years to come. The production of RBOB is generally more expensive than CBOB due to the more complex refining processes and stricter quality control measures required. The need to use specific feedstocks and additives to achieve the desired emission profile adds to the cost.

There isn’t an easy way to invest directly in RBOB gas with stocks or bonds, but you can invest in energy sector stocks and bonds affected by the same economic forces. There are also options for energy-related ETFs focused on oil and natural gas. Whereas buying an RBOB future could cost thousands, shares of ETFs can cost less than $20. It is common because it is considered better for the environment and is required in some areas. The statistics for RBOB gasoline are not perfect due to the fact that production and consumption is measured by crude oil rather than gasoline itself.

The higher the octane rating, the higher the compression rate, with a more efficient fuel capable of a higher output than those with a lower octane rating. This is the reason why some cars accept only certain kinds of fuel, and why there are price discrepancies among various gas options at the pump see also Three Mining Companies With Robust Yields. To reiterate, most of the gasoline produced by refineries is actually unfinished gasoline or gasoline blendstock. This, combined with the way cold air tends to trap warmer exhaust, created hazier and smoggier days. Gasoline is a mixture of those hydrocarbon chains with boiling points below that of water.

Areas mandated to use reformulated gasoline (RFG) will primarily have RBOB-based gasoline available, while areas without such mandates will typically rely on CBOB-based conventional gasoline. These regulations are based on air quality concerns and are enforced to ensure compliance with environmental standards. These reductions contribute to improved air quality, decreased smog formation, and a lower risk of respiratory problems and other health issues. Conventional gasoline, as the name implies, represents the traditional form of gasoline used in areas that do not require RFG. While it doesn’t adhere to the same stringent emission requirements as RFG, conventional gasoline still needs to meet certain quality standards and environmental regulations. CBOB, or Conventional Blendstock for Oxygenate Blending, serves as the foundation for this type of gasoline.

The availability of RBOB and CBOB is largely determined by regional regulations and environmental requirements. RBOB is primarily used in areas that are mandated to use RFG, such as major metropolitan centers with air quality problems. CBOB is used in areas that do not require RFG, typically in rural or less densely populated regions. The distribution of RBOB and CBOB is carefully controlled to ensure compliance with regional regulations and to prevent the commingling of the two types of gasoline. 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.

Unlike RBOB, CBOB is not specifically formulated for low emissions, although it still contributes to reducing overall pollution compared to older gasoline formulations. Producing reformulated gasoline using ethanol presents problems for refiners. Ethanol affects nitrogen oxides (NOx) and toxic emissions as well as Volatile Organic Compounds (VOCs).

Alternatives to RBOB Gas

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