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RBOB Gasoline Fundamentals

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Basic Fundamentals

What Market Fundamentals Can Affect The Unleaded Gas Futures?

In free market economies, supply and demand is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the unleaded gasoline market some of the basic fundamentals that you should consider are:

1. Crude Oil Unleaded gasoline is a by-product of crude oil. Refined product prices typically move together over time. Refined product prices respond to movements in crude oil spot prices but generally lag behind it.

2. Federal Regulations There are countless different regional and seasonal fuel blends required by federal clean-fuel regulations. These “boutique fuels” have increased refining and distribution costs. Boutique fuels typically have fewer fuel producers, are less fungible, and have fewer distribution supply options. Thus, when the market tightens, suppliers’ ability to respond is limited, often resulting in higher fuel prices and increased volatility.

3. Refinery Capacity In the United States there hasn't been a new refinery built since 1976. Currently, US refinery utilization averages around 90%. That leaves very little extra capacity to compensate for outages. The refineries are usually gearing up for gasoline production in the spring. Any refinery shutdowns or problems can cause markets to move higher, since large supplies of gasoline are needed for the summer driving season.

4. Driving Season According to AAA peak driving season in the United States runs from Memorial Day to Labor Day. During this time of the year, unleaded gasoline demand is normally at its peak. However, oil companies begin to ramp up production of unleaded gasoline before the summer driving season begins to ensure ample supplies of unleaded gasoline to meet the expected summer driving demand. (Beware of brokerage firms that try to sell you on far out of the money call options as a sure bet.)

5. Inventory Reports There are two major weekly inventory reports that are helpful in your research and trading of unleaded gasoline futures and options. The American Petroleum Institute publishes their report on Tuesdays, and the US Energy Information Administration publishes their report on Wednesdays. These reports are very closely watched. They summarize crude oil, unleaded gasoline and other refined product inventories, as well as refinery utilizations rates in the United States.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the unleaded gasoline market. Therefore, before opening up a commodity account to trade unleaded gasoline you should consult with a licensed commodity broker that follows the unleaded gasoline market to discuss investment strategies.

* Reformulated Gasoline Blendstock for Oxygen Blending (RBOB) Futures is the new name for unleaded gas futures. The NYMEX has changed the grade of gasoline that is to be traded at their exchange in 2006. RBOB is a wholesale non-oxygentated blendstock traded in the New York Harbor barge market that is ready for the addition of 10% ethanol at the truck rack.

Click here to contact a commodities broker with experience in the gasoline market.

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