The futures market for gasoline is robust and liquid. Similar to crude oil’s WTI futures contract, RBOB Gasoline futures contract (Code: RB) at CME Group trades 23 hours a day, six days per week.
Contract Title | CME Globex/ CME ClearPort Code | Contract Unit | Price Example | Example Notional |
---|---|---|---|---|
RBOB Gasoline futures | RB | 42,000 gallons | $2.4050 | $101,010 |
Micro RBOB Gasoline futures | MRB | 4,200 gallons | $2.4050 | $10,101 |
Gasoline futures have a strong correlation with crude oil, as discussed in Part 1. However, Gasoline futures prices also respond to other factors that create additional volatility and unique trading opportunities. Here’s three things to consider when trading RBOB futures.
1. Summer driving season
Consumers of gasoline are often aware that gasoline prices tend to be higher in the summer and lower in the winter. This seasonal pattern also applies to RBOB futures. The start of summer is an important time for gasoline: demand is accelerating and inventories are often low. The EPA requires changes to the quality of gasoline that makes it more difficult and costly to supply. All of these factors can influence the price of RBOB futures as summer approaches.
Example: A trader studies the historical price behavior for RBOB during May. The trader notes Gasoline futures tend to climb during May and looks at buying the June micro RBOB futures contract.
Are you missing out on Refined Products trading opportunities?
This is the second article of a series designed to help you maximize trading opportunities in the Refined Products complex.
- Part 1: Intro to Trading Refined Products
- Part 2: Three factors to watch when trading Gasoline futures
- Part 3: Three factors to watch when trading Diesel futures
- Part 4: Trading Crack Spreads·
Chart 1
The table below shows the profit and loss a trader may have made by buying 10 June Micro RBOB (Code: MRB) futures contracts on the first trading day in May and selling them at the close of trading on the fourth business day before the end of May over a five-year period.
2024 | 2023 | 2022 | 2021 | 2020 | 5 Yr Average | |
---|---|---|---|---|---|---|
Buy Jun MRB | 2.5774 | 2.5504 | 3.5101 | 2.1015 | 0.7663 | |
Sell Jun MRB | 2.4678 | 2.6622 | 3.811 | 2.1173 | 1.0382 | |
Profit per gallon (in USD) | (0.1096) | 0.1118 | 0.3009 | 0.0158 | 0.2719 | 0.1182 |
Profit on 10 MRB (in USD) | (4,603.20) | 4,695.60 | 12,637.80 | 663.60 | 11,419.80 | 4,962.72 |
Go Deeper: Look for seasonal patterns for RBOB in the fall as well. Inventories are seasonally low, refineries slow operations for maintenance and weather-related supply events tend to occur.
2. Inventory surprises
Traders closely watch inventories of gasoline, which are reported by the Energy Information Administration (EIA) on a weekly basis, typically announced at 9:30 a.m. CT on Wednesdays as part of the EIA’s Weekly Petroleum Status report. Traders look for changes in the rate of inventory builds and draws as a signal for market direction. Deviations from expected changes can result in changes to RBOB futures prices.
Chart 2
Example: A trader notes that the report indicated an inventory withdrawal of 5.57 million barrels, as opposed to the market’s expectation for an inventory build of one million barrels. He believes this is a bullish event. He puts in a buy order for three MRB Q4 at $2.4400 and is filled. He sees the market trade up to a high of 2.4677 and decides to sell at 2.4551.
Chart 3
The table below reflects the trade around the inventory surprise and the trade profit.
Price | Unit | Multiplier | Contracts | Notional Value | |
---|---|---|---|---|---|
Buy 10 Aug24 Micro RBOB (MRBQ4) | 2.4400 | $/gallon | 4200 | 3 | $30,744.00 |
Sell 10 Aug24 Micro RBOB (MRBQ4) | 2.4551 | $/gallon | 4200 | 3 | $30,934.26 |
Profit on Micro RBOB futures | $.0151 | $/gallon | $190.26 |
Go deeper: As inventories of crude oil at Cushing, Oklahoma are a key factor for WTI, gasoline traders closely watch inventory levels near to New York Harbor, the delivery point for RBOB futures. The EIA reports weekly inventories for gasoline in the Central Atlantic region, also known as PADD 1b. PADD 1b gasoline inventories give traders an indication of how much gasoline could be available to make delivery into the futures contract. This can impact sentiment and price, especially near the expiry of the futures contract at the end of each month.
3. Hurricanes and other refinery disruptions
The United States is not only the largest global consumer of gasoline, but also the largest producer. The majority of U.S. refineries are located along the U.S. Gulf Coast in Texas and Louisiana. The geographic concentration of refinery capacity makes gasoline production vulnerable to weather and other events that impact this region. Hurricane season runs from June to October, coinciding with periods of peak gasoline demand and seasonally low inventories. Storms that cause major flooding or power disruptions to areas such as Corpus Christi, Houston, Beaumont and New Orleans often lead to large declines in gasoline production. A sustained hard-freeze can also impact refinery operations in the Gulf Coast.
Traders closely watch weather patterns for extreme events that could disrupt gasoline production.
Chart 4 below shows the inputs of crude oil into refineries, also called crude runs, highlighting the significant impact that regional weather events can have on refinery activity.
Chart 4
Loss of refinery production, or the mere threat of loss of refinery production, can be associated with increases in RBOB futures prices. Chart 5 shows the price of the October RBOB futures contract on the days leading into landfall of Hurricane Ida, which occurred on Sunday, August 29, 2021, in the New Orleans, Louisiana area.
Chart 5: October RBOB futures price
A trader who bought one October RBOB futures contract on August 26 at 2.0913 sells it at 2.1561 on August 30, yielding $2,721.60 in profit.
Price per Gallon | Notional | |
---|---|---|
Buy Oct RBOB futures | 2.0913 | $87,834.60 |
Sell Oct RBOB futures | 2.1561 | $90,556.20 |
Profit | 0.0648 | $2,721.60 |
Go deeper: Rather than just trading a RBOB futures contract, traders often express points of view on gasoline by trading RBOB calendar spreads or RBOB cracks. A long calendar spread includes a long position in one RBOB futures contract and a short position of the same size in a RBOB futures contract with an expiration date later in time. A long RBOB crack position would include a long RBOB futures contract and a short WTI futures contract, typically with the same expiry month.
Chart 6 demonstrates the behavior of the October-November calendar spread in RBOB futures into the landfall of Hurricane Ida.
Chart 6: Oct-Nov RBOB futures spread price
A trader who bought one Oct-Nov calendar spread on RBOB futures on August 26 and sold it on August 30 could have made a profit of 3.66 cents or $1,537.20 in profit as shown in the table below.
Price per Gallon | Notional | |
---|---|---|
Buy Oct - Nov RBOB futures | 0.0519 | $2,179.80 |
Sell Oct - Nov RBOB futures | 0.0885 | $3,717.00 |
Profit | 0.0366 | $1,537.20 |
The gasoline market has its own supply and demand dynamics and seasonal patterns that distinguish it from crude oil. RBOB Gasoline futures at CME Group provide traders with the most liquid instrument to capture opportunity and hedge the unique risks associated with the gasoline market.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.