The RBOB Futures Contract
RBOB gasoline, which stands for Reformulated Blendstock for Oxygenate Blending, is the gasoline traded in the RBOB gasoline futures contract. Gasoline is a fungible product, and is delivered and settled at New York Harbor in the state of New York in the United States. Gasoline is a product, that is refined from crude oil. It can be delivered to New York Harbor by pipeline, train, ship or trucks. Of the refined products used in the United States, RBOB gasoline is the most widely consumed with nearly 10-million barrels a day used by U.S. drivers during the summer driving season.
The RBOB futures contract is traded on the Chicago Mercantile Exchange and is a global international product that is delivered in New York Harbor in New York City in the United States. The futures contract is physically settled which means that if you own the contract passed settlement you are expected to take delivery of the physical gasoline at a New York Harbor location. RBOB futures are priced in cents per gallon, and there are 42,000 gallons per contract.
Contracts are listed monthly, from January to December, with no breaks in the series. RBOB gasoline trades Sunday – Friday 6:00 p.m. – 5:00 p.m. (5:00 p.m. – 4:00 p.m. Chicago Time/CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT) according to the Chicago Mercantile Exchange. Trading in the prompt delivery month terminates on the last business day of the month preceding the delivery month. For example, the February contract ceases on the last trading day of January. RBOB gasoline has a winter and summer specification and is as a driving fuel as well as for some temporary electrical generation.
How to Trade
The RBOB futures contract experienced price changes that are driven by several factors the most notably the weekly inventory statistics that are estimated by the U.S. Department of Energy in the United States. On a weekly basis, on Wednesday at 10:30 AM ET, the Energy Information Administration releases its estimate of weekly gasoline inventories, and demand figures. The weekly numbers are then revised to form monthly estimates that are used to determine the supply and demand for gasoline.
Gasoline is a petroleum product that is refined from crude oil. RBOB futures are traded as an outright product as well as a spread to crude oil. The spread is referred to as the “crack spread” and reflects the refining margin received by refiners.
On a weekly basis, the Department of Energy produces data on inventories and plots stocks levels on a weekly basis showing the 5-year average relative to current inventory levels. Traders will often use this information as a guide to the future direction of RBOB gasoline prices. RBOB inventory levels are subject to a seasonal effect as most of the driving in the United States occurs between Memorial Day in May to Labor Day in September.
Most of the refining capacity in the United States is in states that border the Gulf of Mexico. This allows the refineries to receive shipments of crude oil from all-over the world. This area does not come without risks, as Hurricanes can hit the gulf and shut down refining capacity. In August of 2017, Hurricane Harvey hammered Texas shutting nearly 25% of all refining capacity in the United States sending RBOB gasoline prices soaring.
While gasoline prices are driven by their own fundamentals, 75% of the movement can be tracked to changes in the prices of crude oil. For this reason, traders who are focused on RBOB gasoline should also track changes in the price of global crude oil benchmarks such as WTI crude oil and Brent crude oil.