What is the Difference Between RBOB and CBOB
The key difference between RBOB and CBOB is that RBOB gasoline burns more cleanly than CBOB gasoline.
RBOB and CBOB are two types of gasoline with additives/blends. These two forms of gasoline burn differently, which makes them useful in different applications. However, using either of these fuel types can reduce emissions of volatile organic compounds, carbon monoxide, and nitrogen oxides. These are pollutants that can form ozone. Moreover, RBOB reduces the emissions of some toxic pollutants.
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What is RBOB?
The term RBOB refers to reformulated blendstock for oxygenated blending. It is a component useful in creating reformulated gasoline. Generally, reformulated gasoline produces a low amount of smog compared to other gasoline blends. This results in around 30% of the US market requirements of the gasoline reformulations.
The RBOB gasoline is listed on the Chicago Mercantile Exchange though it does not receive much investor interest in a similar capacity to that of crude oil futures. Generally, the prices of RBOB gasoline types have a high degree of correlation with crude oil because gasoline is distilled from crude oil. Therefore, some of the global supply and demand factors for crude oil apply to RBOB as well.
The RBOB gasoline crack spread allows us to trade the spread between the RBOB gasoline futures and Brent futures. This type of trading causes two separate positions in the underlying future legs where a long position in RBOB gasoline futures and a short position in Brent futures.
The introduction of higher blends of ethanol in gasoline in many countries in Europe has reduced the contribution of fossil fuels to the gasoline pool. In order to completely realize this, the chemical makeup of the blendstock can be adjusted to take out any additional oxygenates, allowing a higher proportion of ethanol.
RBOB gasoline has become the world’s most liquid gasoline futures contract because it is the only gasoline futures contract trading electronically around the clock.
What is CBOB?
CBOB stands for conventional blendstock for oxygenated blending. It is a common grade of gasoline that is formed from refineries, mainly in the USA. The name of this gasoline is derived because of its conventional grade of gasoline that is opposite to the reformulated grade having tighter environmental specifications.
This type of gasoline is intended to blend with oxygenates downstream of the refinery. Moreover, CBOB needs to become conventional gasoline soon after blending with oxygenates. Usually, gasoline in the USA additionally contains 10% ethanol. Similarly, conventional blendstock for oxygenated blending is a blendstock consisting of ethanol to get E10 gasoline.
What is the Difference Between RBOB and CBOB?
RBOB and CBOB are two types of gasoline that are useful due to their favorable properties. The key difference between RBOB and CBOB is that RBOB gasoline burns more cleanly than CBOB gasoline. In other words, burning RBOB gasoline emits a reduced amount of toxic pollutants and other types of emissions compared to CBOB gasoline. Moreover, RBOB is more expensive than CBOB.
The below infographic presents the differences between RBOB and CBOB in tabular form for side-by-side comparison .
Summary – RBOB vs CBOB
The term RBOB refers to reformulated blendstock for oxygenated blending, while the term CBOB stands for conventional blendstock for oxygenated blending. In conclusion, the key difference between RBOB and CBOB is that RBOB gasoline burns more cleanly than CBOB gasoline.
What Is Rbob Gas
In investing, RBOB gas is the benchmark for gasoline on the futures market. Minimum contracts are equal to 42,000 gallons (1,000 barrels) and trade for the value per gallon. That means you need to multiply the quoted price by 42,000 to know what the contract cost will be. 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. Drivers use more gas in the summer, which also affects the price because of the increase in demand.
Example of RBOB Gas#
You can use the CME Group website or the Nasdaq website to find the current price of a gallon of RBOB gas. Say you want to buy an RBOB contract when the price is around $2.30 per gallon. The price for one contract is $96,600 ($2.30 x 42,000). The margin for the commodity is $11,550 when you buy. That means you only need 12% of the total investment down to buy the contract on margin.
Alternatives to RBOB Gas#
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.
What It Means for Individual Investors#
Futures contracts aren’t as popular among individual investors as stocks and bonds because they are generally harder to analyze and trade. Futures involve leverage, which can sink a whole account in days with relatively small moves. Individuals can trade RBOB gas with most brokerage firms. Keep in mind the price: One contract is likely cost-prohibitive even though you can buy a contract on margin. RBOB futures come with significant risks, too. If gas prices move against you by 20% or more, it could be devastating for your portfolio. Individuals who own a business that is sensitive to gas prices—a trucking company, for example—can use RBOB gas futures as a hedge. If you expect a future increase in gas prices, you can buy an RBOB futures contract, say, at $2.30 a gallon. If the price of gas rises past $2.30, you can sell your futures at a profit. If the price of gas drops below $2.30, you would sell the futures at a loss but save money at the pump. Additionally, RBOB price changes lag a few days behind the price you pay at the gas station. So, keeping an eye on RBOB prices can give you a sense of where retail gas prices are headed.
RBOB Gasoline: Understanding One of the Most Important Commodities in the World
In this guide to understanding RBOB gasoline as a commodity, we’ll explain why it’s valuable, how and where it’s made, which countries produce the most gasoline, and explain what drives its price.
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What Is RBOB Gasoline?
Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline is a fuel product made from refined crude oil. RBOB gasoline often goes by the names gasoline, petro gasoline or petrol.
Edwin Drake, the first American to drill for oil, discovered gasoline by accident when he was distilling oil to make kerosene for heating. Drake considered gasoline a useless byproduct of the distillation process and discarded it.
However, after the invention of the automobile in 1892, gasoline became the main source of fuel for cars and light-duty vehicles. This makes gasoline one of the most important and well-known commodities in the world.
How is Gasoline Made?
Gasoline production takes place in oil refineries. These industrial facilities separate crude oil, which consists of different hydrocarbons, into smaller component hydrocarbons or fractions.
Each fraction has molecule chains of different lengths, and each of these chains has a different boiling point.
Role of Refineries
Refineries heat crude oil at temperatures of several hundred degrees and place the boiling liquid into distillation columns called stills. The boiling process produces gasoline as well as other products including kerosene and diesel fuel.
Each of these products is recovered at different temperature points.
A typical 42-gallon barrel of crude oil yields 45 gallons of petroleum products. Gasoline represents nearly half of the petroleum products produced, which ranks it as the number one product recovered during the refining process.
Crude Oil Distillation by Mbeychok via Wikimedia (CC BY-SA 3.0)
The supply of gasoline depends on the availability of both crude oil and refineries. Industry watchers measure refiners by their capacity, which is the amount of crude oil that can go into distillation units.
Crack Spreads
Oil refiners look at crack spreads when making production decisions.
A crack spread is the difference between the wholesale price of a refined petroleum product such as gasoline and the price of crude oil.
Crack spreads are a way to measure the margins for refining crude products and can serve to predict how tight the supply of products is in different markets.
Top Countries by Gasoline Production
| Rank | Flag | Country | Gasoline Production (Thousand Barrels Per Day) |
|---|---|---|---|
| #1 |  USA |
8,900 | |
| #2 |  China |
2,100 | |
| #3 |  Japan |
920 | |
| #4 |  Russia |
900 | |
| #5 |  India |
700 | |
| #6 |  Canada |
690 | |
| #7 |  Germany |
480 | |
| #8 |  Brazil |
460 | |
| #9 |  United Kingdom |
410 | |
| #10 |  Mexico |
405 |
Gasoline is the main product made in US oil refineries. Consumers use gasoline for fuel in cars, light trucks and motorcycles as well as recreational vehicles, boats and small aircraft.
Gasoline is also used as a fuel in equipment for construction, farming, forestry and landscaping. Electricity generators and emergency power supplies also use gasoline.
What Drives the Price of Gasoline?
Gasoline prices can fluctuate for many reasons but the most important ones include the following:
- Crude oil prices
- Refining costs and profits
- Distribution and miscellaneous costs
- Seasonal demand
- Political events
- Global demand picture
Crude Oil Prices
Gasoline derives from refining crude oil, so the price of crude oil has a big impact on its price.
Several factors can impact the global demand for crude oil, but the most important one is overall economic strength. Other factors that impact crude oil pricing include:
- The strength of the US dollar (crude prices generally move in an inverse relationship with the dollar)
- Political events, such as decisions by the Organization of the Petroleum Exporting Countries (OPEC) to increase or limit production
- Weather conditions
- Competition from competing energy sources such as solar, hydroelectric, and wind power
Refining Costs and Profits
The costs of operating refineries and the productivity of those refineries can have a major effect on gasoline prices.
Crude oil varieties and the technology available for refining them can lead to different gasoline products and pricing from one refinery to the next.
Seasonal pollution requirements for gasoline can also lead to disparities in pricing as can weather-related disruptions to refinery operations.
Distribution and Miscellaneous Costs
The cost of crude oil and refining it represent the major components of gasoline pricing, but several other miscellaneous factors can affect the final price consumers pay:
- Transporting gasoline from refineries to terminals near gas stations: Harder-to-reach destinations often translate to higher prices.
- Regulatory requirements: In some markets, gasoline producers must add ethanol to comply with laws.
- Local market economic conditions: Affluent areas often have higher prices than poorer areas.
Seasonal Demand
Gasoline prices show strong seasonal patterns. In the lead-up to summer, prices tend to rise in anticipation of peak driving season. Prices tend to fall in the winter when inclement weather keeps consumers off the roads.
California is the largest gasoline-consuming state with over 15 billion gallons consumed every year.
Snowplows by The City of Toronto via Flickr (CC BY 2.0)
Seasonal patterns also emerge as a result of formulation requirements for gasoline. Environmental regulations in the United States, for example, require gasoline sold in the summer to be less susceptible to evaporation.
This requires refiners to substitute more expensive components into gasoline.
Political Events
Turmoil in important oil-producing countries can create spikes in gasoline prices. In the past, Middle East wars, oil embargos, political coups and acts of terrorism have created fears of supply disruptions and higher prices.
Global Demand Picture
Increasing demand for gasoline in Asia, Latin America and the Middle East often outpaces supply from those regions. Demand for gasoline has been steadily declining in Europe and the United States.
Fluctuations in global demand and how refineries respond to changes in demand can materially affect gasoline prices.
New technologies such as electric-powered vehicles, for example, could substantially reduce demand for gasoline.
Where Can I Trade Energy Commodities?
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Brief Background
RBOB gasoline (Reformulated Blendstock for Oxygenate Blending) is just the more technical (& trading) term for the petrol/gasoline/gas for your car, truck, motorbike, etc. It’s one of the liquids refined from crude oil, making up almost half of all other crude oil products that gets distilled/refined. Fun fact: a 42-gallon barrel of crude oil produces 45 gallons of distilled & refined products. Sort of how popcorn kernels are smaller and denser before popping.
What Can It Do For You
�� Portfolio Diversification. Bundling up gasoline with other commodities can be a good way to achieve portfolio diversification. Like crude oil, it’s an energy commodity, and so it tends to move differently compared to other asset classes like stocks and bonds, and even other types of commodities.
�� Profit. Similar to the oil market, gasoline is also pretty volatile, as you can see from the price charts below. Gasoline prices tend to just represent a premium to crude oil prices and are highly correlated, since under normal circumstances, refineries just add operating costs to the cost of crude oil. However, there are times when unexpected events may occur and so crude oil & gasoline prices may diverge slightly. Saying that though, it also tends to correct itself soon after. In short, risk is very high since unexpected factors can swing its price, but with it, comes the opportunity to make lucrative profits, if you know what factors to look out for.
What Affects RBOB Gasoline Prices
Gasoline prices move similarly to how oil moves. Knowing what moves the price of gasoline can help you understand the current situation.
- ��️Crude Oil Prices.This one is pretty straight-forward. Since gasoline is derived from crude oil, oil prices have a big impact on gasoline prices. Check back to our crude oil article for more info on what drives oil prices.
- ��Refinery Operating Costs.This includes things like refining, distribution, and other additional costs:
�� Refining. The cost of operating the refineries are added to the price of gasoline.
�� Distribution. The costs of transporting gasoline to terminals, and then to gas pumps, can also be added to the price.
⚖️ Emissions Regulations. In some places, refiners have to add ethanol with gasoline to reduce harmful emissions. Adding ethanol may mean more costs, and therefore higher prices.
- ��️ Global Demand.Similar to crude oil, demand for gasoline is global, especially in emerging economies where improved economic conditions may mean more vehicles are on the roads.
- ⚡Disruptive Global Events. Disruptive events like war, conflict, and a pandemic can affect and disrupt global supply & demand dynamics. These events create uncertainty regarding gasoline supply/production, or drive down global demand.
- ��️ Weather. Weather can definitely the price of gasoline. Adverse weather conditions can damage oil pipelines connected to refineries, potentially delaying shipments & reducing supply. Weather can also impact demand. Cold winters may mean lower prices since people stay indoors. Just before peak driving season in the summer, prices may rise.
- �� Advancements In Alternatives. Further developments & increased mass adoption in electric vehicles can mean reduced demand for gasoline.
���� When Oil Went Negative, Why Couldn’t I Get Free Gasoline At The Pump?
There are a couple of reasons here. First, you can’t really put raw crude oil in you car. Refineries are needed to distill and refine crude oil into all of its other products, gasoline included. Like any other business, they need to be able to cover their costs and then pocket some profit from the products they sell. Even though they were able to receive oil for cheap, they also couldn’t sell as much as they did pre-pandemic since no one drove anywhere. So, they needed to charge enough to cover all of their operating costs. Also, investment prices in gasoline are usually different to retail-priced gasoline. This is because a gasoline futures contract deals in wholesale prices for a bulk quantity, usually about 42,000 gallons, or 1,000 barrels. The price you pay at the pump is the retail price, and also includes tax, amongst other costs.
Where Is Demand Coming From?
This one is also pretty straightforward. The main use is transportation, but there are some other uses as well.
- �� Vehicles.Vehicles like cars, light trucks and motorbikes. Also recreational vehicles like RVs, quad bikes, etc.
- ��️ Small Aircraft.
- ��️ Boats.
- �� Equipment & Tools. Used in industries like farming, forestry, landscaping, construction, etc.
- ⚡ Power Generators & Emergency Power Supply.
The Case For RBOB Gasoline
Since it’s pretty correlated with crude oil, gasoline is also very volatile. High volatility also means lucrative returns on investment. With its cyclical pattern, there are multiple opportunities to enter & exit with profit. Because it’s a global commodity, demand for gasoline is expected to pick up especially in emerging markets. In addition, concerns about limitations on refining capacities to meet this growing demand could result in higher prices. Similar to crude oil, just be wary of further lockdown restrictions that may keep demand low.
The Case Against RBOB Gasoline
Like crude oil, gasoline prices can swing unpredictably at times, and unexpected events (like the pandemic) can result in massive price swings. The uncertainty about the status of the pandemic, including further lockdown restrictions, may further dampen gasoline demand in the near future. With climate change & global warming slowly becoming a main talking point for societies all over the world, people may slowly shift away from petrol-based vehicles to electric vehicles.
Popular Ways To Invest In RBOB Gasoline — Pros/Cons of Each
You can’t really invest in physical gasoline, since you’d probably be paying for consumer-priced gasoline (not wholesale). You’d also have to eventually find a buyer who’s willing to buy from you and not from the pump directly. Nonetheless, there are other official gasoline investment instruments that you can explore. If you’re still confused about how any of these work, refer back to our basics newsletter for a refresher.
- Gasoline ETFs. Gasoline Exchange-Traded Funds are traded on stock exchanges, so they’re very easy to buy and sell. There are a number of options here. You can choose ETFs that only invests in gasoline, or ETFs that bundle up gasoline with other commodities. As usual, whichever ETF you choose, be aware of the fine print — the risks and costs.
- Gasoline Stocks. These are shares of oil-extracting/refining companies. While you will get some exposure to gasoline (& oil) prices, there are times when the company’s stock price and gasoline price diverge, such as events like the BP oil spill. You may want to consider looking at the company’s annual reports (especially operational costs), portfolio of what rigs they have, and potential exploration plans. This option is probably the easiest way to get into gasoline trading.
- Gasoline Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell gasoline at a specified time in the future with an agreed-upon price. Because you are using a significant amount of borrowed money, even small price changes in gasoline can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. A typical contract usually deals with 42,000 gallons of RBOB gasoline. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.
TL;DR — Is It The Right Investment For You?
As always, it depends on what your aims are. Its price pretty much follows crude oil since gasoline is derived from it. So, it’s also a highly volatile and risky investment that can offer lucrative returns. Even so, it’s still a commodity, so adding it to your portfolio and bundling it up with other commodities can help you achieve diversification & lower overall portfolio risk. Just be wary of future developments that can lower its price even further. Keep track of crude oil price drivers since that’s arguably the biggest driver to gasoline prices.
�� If you are considering adding gasoline to your portfolio or bundling it with a number of other commodities, you may want to consider doing dollar-cost averaging (regular investments over time) to build your gasoline position so you can take advantage of the volatility in the market.
�� If you are considering trading gasoline for speculation and profit, you may want to monitor the factors that affect crude oil prices mentioned in the previous article, since that arguably has the biggest impact on gasoline prices. Also, watch out for further lockdown restrictions that may further hamper demand around the world. In addition to monitoring the factors mentioned above, you may also want to consider performing some technical analysis on gasoline’s price chart to help consolidate trends and patterns to help with your decision.
As always, if you are unsure, check in with a professional financial advisor before making any moves.