RBOB Gasoline

Gasoline is a complex mixture of hundreds of lighter liquid hydrocarbons and is used chiefly as a fuel for internal-combustion engines. Petroleum crude, or crude oil, is still the most economical source of gasoline with refineries turning more than half of every barrel of crude oil into gasoline. The three basic steps to all refining operations are the separation process (separating crude oil into various chemical components), conversion process (breaking the chemicals down into molecules called hydrocarbons), and treatment process (transforming and combining hydrocarbon molecules and other additives). Another process, called hydro treating, removes a significant amount of sulfur from finished gasoline as is currently required by the state of California.

Octane is a measure of a gasoline’s ability to resist pinging or knocking noise from an engine. Most gasoline stations offer three octane grades of unleaded fuel—regular at 87 (R+M)/2, mid-grade at 89 (R+M)/2, and premium at 93 (R+M)/2. Additional refining steps are needed to increase the octane, which increases the retail price. This does not make the gasoline any cleaner or better, but yields a different blend of hydrocarbons that burn more slowly.

In an attempt to improve air quality and reduce harmful emissions from internal combustion engines, Congress in 1990 amended the Clean Air Act to mandate the addition of ethanol to gasoline. Some 2 billion gallons of ethanol are now added to gasoline each year in the U.S. The most common blend is E10, which contains 10% ethanol and 90% gasoline. Auto manufacturers have approved that mixture for use in all U.S. vehicles. Ethanol is an alcohol-based fuel produced by fermenting and distilling crops such as corn, barley, wheat and sugar.

RBOB gasoline futures and options trade at the New York Mercantile Exchange (NYMEX). The NYMEX gasoline futures contract calls for the delivery of 1,000 barrels (42,000 gallons) of RBOB gasoline in the New York harbor and is priced in terms of dollars and cents per gallon.

Price – NYMEX gasoline futures prices rallied in early 2010, traded lower through August, and then showed a sharp rally late in the year, closing 2010 up 18% at $2.43 per gallon.

The average monthly retail price of regular unleaded gasoline in 2010 (through November) rose +18.6% yr/yr to $2.78 per gallon. The average monthly retail price of unleaded premium motor gasoline in the U.S. in 2010 (through November) rose +16.9% to $3.04 per gallon. The average monthly refiner price of finished aviation gasoline to end users in 2010 (through September) rose +22.4% yr/yr to $3.00 per gallon.

Supply – U.S. production of gasoline in 2010 (through November, annualized) rose +2.8% yr/yr to 9.029 million barrels per day. Gasoline stocks in October of 2010 were 65.584 million barrels, down from 84.927 million barrels in December of 2009.

Demand – U.S. consumption of finished motor gasoline in 2010 (through November, annualized) rose +0.7% yr/yr to 9.055 million barrels per day, but still below 2007’s record high of 9.284 million barrels per day.