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How Does Summer Seasonality Impact Gasoline Futures?

October 28, 2021 by Daniels Trading| Tips & Strategies

The Chicago Mercantile Exchange (CME) offers the public a variety of energy products facing the commodity and refined fuel sectors. Among these listings are Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline futures.

Read on to learn more about CME RBOB futures, key market drivers, and how seasonality impacts asset pricing.

What Are RBOB Gasoline Futures?

CME RBOB futures are the world’s leading derivative product facing refined fuels. The RBOB contract is based on the value of unleaded gasoline distillates and is a favored destination for energy speculators and hedgers alike. Here is a look at CME RBOB futures contract specifications:

Symbol RB
Availability CME Globex
Size 42,000 Gallons
Quotation U.S. dollars and cents per gallon
Minimum Tick $0.0001 per gallon
Tick Value $4.20
Listings Monthly contracts listed for the current year and the
next three years and one month
Settlement Physical delivery

RBOB gasoline futures feature a market depth far less than that of the CME’s benchmark West Texas Intermediate (WTI) crude oil contract. In fact, for September 2021, RBOB futures traded between 140,000 and 240,000 contracts per day.

Comparatively, WTI crude oil regularly topped 1 million in average daily volume (ADV). For active traders, it’s important to understand that the moderate liquidity of RBOB futures can lead to enhanced volatility, disjointed price action, slippage, and wide bid-ask spreads.

Summer Seasonality Is a Key RBOB Market Driver

At its core, gasoline is a derivative of crude oil. The U.S. Energy Information Administration (EIA) estimates that 19 to 20 gallons of refined gasoline are produced from one 42-gallon barrel of crude oil. Given the commodity-refinement relationship between crude oil and gasoline, it stands to reason that the two assets would show a positive pricing correlation. So as the pricing of WTI crude oil goes, so does the price of RBOB gasoline futures.

During the summer months in the Northern Hemisphere (June, July, August), the consumption of both crude oil and gasoline peaks for the year. The factors for this are multifold, including increased highway travel and enhanced economic activity. As a result, RBOB futures prices typically rise during the summer months in concert with the heightened demand. However, it’s important to understand that RBOB gasoline futures have a collection of market drivers exclusive of crude oil:

  • Weather: The U.S. Gulf Coast region is a vital hub for the refinement of gasoline. Hurricanes and floods have the potential to derail production and bring chaos to the market.
  • USD: Crude oil and gasoline futures are both priced in U.S. dollars, in adherence to the petrodollar system. Subsequently, RBOB futures are sensitive to periods of USD inflation (bullish) or deflation (bearish).
  • Outliers: Outliers such as the COVID-19 pandemic can sway gas prices immensely. During the 2020 onset of COVID-19, gasoline consumption fell 14 percent from 2018 levels, which depressed RBOB prices. As expected, summer 2020 posted an average price of $2.07 per gallon, the lowest since 2004. When demand returned, the average price rose to $2.78 per gallon for summer 2021.

Generally, both WTI crude oil and RBOB gasoline see their highest prices of the year during the Northern Hemisphere’s summer months. However, inclement weather, USD performance, and Black Swan events can rapidly derail historical pricing models.

Looking forward, two crucial factors are poised to impact the trading of gasoline futures:

  • Green energy policies: Higher taxes on gasoline consumption and restrictive crude oil production policies are potential bullish market drivers.
  • Electric vehicles: The electric vehicle market is projected to grow from 4,093 thousand units in 2021 to 34,756 thousand units by 2030. If realized, this would be an annual compounded growth rate of 26.8 percent and a bearish gas market underpinning.

Is the Future Gasoline or Sustainability?

Successful futures traders all have one thing in common: They can adapt to change. For participants in the RBOB market, this means addressing not only the seasons but also the future of the industry.

To learn more about how you can diversify into the arena of sustainable investing, check out our free on-demand webinar “The Future of Sustainable Investing.” You’ll find everything you need to align your financial goals with your ESG values.

What Is Sustainable Investing and Why Does it Matter?

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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