CME Group’s RBOB gasoline futures contract, ticker symbol RB, allows market participants the opportunity to profit from or hedge against the price movements of the most important refined byproduct of crude oil.
As the primary fuel for most automobiles on the road, gasoline is an integral commodity to the lives of most consumers.
Though the current RBOB contract is not delivered in a state ready for automotive consumption, it still trades in a manner that reflects gasoline demand because local markets purchase RBOB and then add their own additives required by their respective regulations.
CME Group’s RBOB contract offers a way for investors to profit or hedge against one’s outlook on crude oil, weather, consumer behavior and regulatory action in terms of current and future energy consumption.
The Contract
Each CME Group RBob futures contract represents 42,000 gallons of heating oil with a minimum price fluctuation of $.0001 per gallon, or $4.20 per contract. The contract trades Sunday-Friday from 6:00pm-5:00pm est with a daily 60-minute break at 5:00pm est.
Supply and Demand
Traders of RBOB monitor multiple factors in order to best position themselves in the market. Obviously, as gasoline is a byproduct of crude oil, all RBOB traders keep close watch on the price of WTI or Brent due to the tight price correlation between the two products.
It’s important to note that RBOB’s price is sensitive to any extreme weather that could take refineries located in the Gulf region offline. In addition, driving behavior of the public predictably impacts the contract’s price and often follows seasonal trends: the strength of “summer driving season” dominates the discourse on the trade for much of the year.
Overall, as the entire energy complex is tightly bound up with environmental concerns, RBOB can swing with the imposition of new regulations and the introduction of new, cleaner energy sources.
