RBOB Gasoline Futures Strategy (Backtest And Example)

Last Updated on December 16, 2022

RBOB Gasoline futures are actively traded on commodity exchanges due to state legislation banning gasoline with MTBE. RBOB, short form for Reformulated Gasoline Blendstock for Oxygenate Blending, is a newer blend of gasoline that allows for 10 percent fuel ethanol and has become the new benchmark gasoline contract. Want to know about the RBOB Gasoline futures strategy?

An RBOB Gasoline futures strategy is the technique and method you can use to profitably trade RBOB Gasoline futures contracts. RBOB Gasoline futures refer to futures contracts whose underlying asset is a specified quantity and quality of RBOB Gasoline.

Trading on ICE Futures Europe and CME, the contract represents a legally binding agreement to buy or sell a specified quantity of RBOB Gasoline on a future date, at a pre-agreed price. A good RBOB Gasoline futures strategy would include technical and fundamental analyses for market timing and risk management techniques.

In this post, we answer some questions about the RBOB Gasoline futures strategy. After explaining some basics, we show you a backtested strategy.

What are RBOB Gasoline futures?

RBOB Gasoline futures are futures contracts whose underlying asset is a specified quantity and quality of RBOB Gasoline. Such contracts represent a legally binding agreement to receive or deliver the specified quantity of RBOB Gasoline on a future date, at a pre-agreed price.

The contract trades on the CME Group (NYMEX) and ICE, and it is settled by the physical delivery of the specified quantity and quality of RBOB Gasoline at the expiration of the contract — the seller of the RBOB Gasoline futures contract delivers the specified quantity and grade of RBOB Gasoline to the buyer through the exchange.

Traders who just want to speculate on the RBOB Gasoline price without getting involved in the delivery can close out their trades before expiry or roll over their contracts. Given the high demand for gasoline for everyday activities, RBOB Gasoline futures are actively traded with good liquidity and volatility, which makes it appealing to short-term speculators.

What is an RBOB Gasoline futures strategy?

An OJ futures strategy refers to the methods and techniques you can use to profitably trade the RBOB Gasoline futures market. Your RBOB Gasoline futures strategy should include technical and fundamental analyses to find appropriate entry and exit signals.

In performing fundamental analysis, you study the factors that affect RBOB Gasoline, including crude oil prices, climate change policies, and so on. With technical analysis, you look at an RBOB Gasoline futures chart to determine the best entry point to purchase a contract so you don’t buy too high and risk a huge loss. In addition to your analysis for entry and exit signals, you need to have some risk management and trade management techniques.

RBOB Gasoline futures strategy backtest

A strategy backtest with trading rules and settings is coming shortly.

What is the seasonality of RBOB Gasoline futures?

Seasonality in RBOB Gasoline futures refers to the tendency of the asset’s price to move in a fairly predictable way during certain periods of the year. The periods here may refer to the months of the year or the four seasons (winter, spring, summer, and fall) of the year.

RBOB gasoline futures strategy
Source: Equity Clock

From the chart above, you can see that the RBOB Gasoline futures tend to perform better between February and the end of June. The market seems to decline in the second half of the year and the month of January.

What moves the RBOB Gasoline market What affects the RBOB Gasoline market the most?

The most important and direct factor is the price of crude oil because RBOB Gasoline is gotten from crude oil. By extension, any factors that affect crude oil prices will also affect gasoline prices. Such factors include geopolitical tension, climate change policies, OPEC announcements, and so on. Another important factor is the seasonal changes in gasoline demand — gasoline demand tends to decline during the winter months.

How are RBOB Gasoline futures traded?

RBOB Gasoline futures contracts are traded on ICE Futures Europe and CME Group’s Globex platform. On the CME Globex platform, the contract trades from Sunday to Friday, from 6:00 p.m. – 5:00 p.m. ET (5:00 p.m. – 4:00 p.m. CT) with a 60-minute break each day beginning at 5:00 p.m. ET (4:00 p.m. CT).

One full contract unit of RBOB Gasoline futures is equivalent to 42,000 gallons, and the price quotation is in US dollars and cents per gallon. There are monthly contracts listed for the current year and the next 3 calendar years, with monthly contracts listed for a new calendar year and 1 additional month following the termination of trading in the December contract of the current year. Settlement is by physical delivery, and trading terminates on the last business day of the month prior to the contract month.

How do you start trading RBOB Gasoline futures?

You trade the contract through a futures broker that will grant you access to the exchange where RBOB Gasoline futures contracts are traded and also help to clear your trades. So, register with a futures broker and fund your account — you only need to have a little above the required margin to start trading. For the full contract, the margin is $7,700 for the December 2022 contract.

If you just want to speculate on price movements, you may trade the CFD of RBOB Gasoline futures contracts via an online CFD broker, such as IG. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade. So, you only trade price fluctuations without having to worry about the rigors of asset delivery in direct futures trading.

What is the RBOB Gasoline trading at?

RBOB Gasoline futures were trading at $2.2005 per gallon, as of December 14, 2022. See the chart here on the CME platform chart. You can also get it from TradingView.

Note that since the price changes from time to time, what is quoted here may not be the price it would be trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links.

What’s RBOB Gasoline futures hour?

On the CME Globex electronic platform, RBOB Gasoline futures trade from Sunday to Friday, from 6:00 p.m. – 5:00 p.m. ET (5:00 p.m. – 4:00 p.m. CT) with a 60-minute break each day for maintenance beginning at 5:00 p.m. (4:00 p.m. CT) — Monday to Thursday.

The trading hours for Trading at Settlement (TAS) is Sunday – Friday, from 6:00 p.m. to 2:30 p.m. ET (5:00 p.m. – 1:30 p.m. CT). For CME ClearPort, the schedule is from Sunday to Friday, from 5:00 p.m. – 4:00 p.m. CT. There is no reporting Monday – Thursday from 4:00 p.m. – 5:00 p.m. CT.

Where can I find trading charts?

The chart can be found on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, which provides free access to the charts of various instruments. However, to connect TradingView to your broker, you must subscribe to its Pro services. Another source is the CME platform, which shows the TradingView chart.

You can also use Yahoo Finance, which offers free chart services or subscribe to trading charts through a paid third-party platform like MultiCharts.

What are the trading symbols for RBOB Gasoline futures?

On the CME platform the product codes for RBOB Gasoline futures are as follows:

  • CME Globex: RB
  • CME ClearPort: RB
  • Clearing: RB
  • TAS: RBT
  • TAM: “RBL”,”RBP”,”2RB”,”3RB”

What is the specification for the RBOB Gasoline futures contract?

On the CME Globex platform, one contract unit of RBOB Gasoline futures is equivalent to 42,000 gallons, which is worth $92,421 at the current price of RBOB Gasoline per gallon ($2.2005), but the margin requirement is $7,700 for the December 2022 contract. The price quotation is in US dollars and cents per gallon, and the minimum price fluctuation is one-hundredth of a cent ($0.0001) per gallon, which translates to a tick size of $4.20 per contract.

There are monthly contracts listed for the current year and the next 3 calendar years, with monthly contracts listed for a new calendar year and 1 additional month following the termination of trading in the December contract of the current year. Settlement is by physical delivery, and trading terminates on the last business day of the month prior to the contract month.

Why should you start trading RBOB Gasoline futures?

These are some of the reasons why you may want to trade RBOB Gasoline futures:

  • To hedge inflation, as commodity prices rise with rising inflation
  • To diversify your portfolio into the commodity market
  • To speculate on RBOB Gasoline prices and profit from price fluctuations
  • To hedge your exposure in the market if you are an industry stakeholder

What is the contract size?

One contract unit of RBOB Gasoline futures is equivalent to 42,000 gallons. Given the current price of RBOB Gasoline at $2.2005 per gallon, as of writing, the USD worth of the contract is 42,000 x $2.2005 = $92,421.

What is the tick size?

The tick size of the RBOB Gasoline futures is $4.20 per contract.

What is the minimum price fluctuation for RBOB Gasoline futures?

The minimum price fluctuation is one-hundredth of a cent ($0.0001) per gallon.

Are there any ETFs?

Yes, there is an ETF trading in the U.S. stock market that offers pure play in gasoline — United States Gasoline Fund LP (UGA). This fund invests in RBOB Gasoline futures of different maturity periods and can be a useful tool for investors looking to bet on an increase in RBOB gasoline prices.

What factors affect RBOB Gasoline prices?

These are some of the factors that affect RBOB Gasoline prices:

  • Crude oil prices — RBOB Gasoline is gotten from crude oil, so crude oil prices significantly affect its price.
  • Geopolitical tension — When there is a political crisis in any of the major oil-producing countries, gasoline prices tend to go up.
  • Climate change policies — Governments around the world want to limit the use of gasoline and other fossil fuels due to climate change. Such policies can affect crude oil and gasoline prices.
  • Major reports — Reports from OPEC and other key stakeholders can move gasoline prices. In fact, OPEC can raise crude oil prices, and by extension, gasoline prices by cutting down on production.
  • Production cost — The cost of refining crude oil and the efficiency of the refineries can affect gasoline prices. A new technology that lowers the cost of refining can bring down gasoline prices.
  • Demand and supply imbalances — An imbalance in the demand and supply of the commodity will affect the prices. During winter, for example, gasoline demand declines, bringing down gasoline prices.

What is the all-time high for RBOB Gasoline futures?

Based on the TradingView chart for RBOB Gasoline futures (RB), the all-time high for the RBOB Gasoline futures contract is $4.3260 per gallon, which was reached in June 2022.

What are the biggest risks in trading RBOB Gasoline futures?

When trading RBOB futures, as with any other futures contract, the biggest risk comes from adverse price movement. Futures are leveraged instruments, so the losses are calculated using the actual value of the contract size traded, rather than the margin deposited.

For example, if you trade with a 20x leverage, a 1% negative movement would lead to a 20% loss, and a 5% negative movement would result in a 100% loss in your account (wipe out your account). On the other hand, if you trade with a 2x leverage, a 1% negative move would only cause a 2% loss in your account, while a 5% adverse move would only cause a 10% loss in your account.

What is the settlement method?

Deliverable

What is the settlement procedure?

On expiry, the seller delivers the specified quantity of RBOB Gasoline to the buyer, under the supervision of the exchange. Meanwhile, daily settlements apply until the last trading day.

What is the block minimum for RBOB Gasoline futures?

The block minimum for RBOB Gasoline Futures TAS is 25 contracts.

What is the difference between RBOB Gasoline futures and the CFD for RBOB Gasoline?

RBOB Gasoline futures have expiry dates and may involve the delivery of RBOB Gasoline, while RBOB Gasoline CFDs can be traded indefinitely without the issue of contract expiry or asset delivery.

Which forex pair is the same as RBOB Gasoline futures

RBOB Gasoline CFD

What are some important dates for this market?

Some of the important dates in this market include:

  • December 3, 1984: Unleaded gasoline futures were launched on NYMEX
  • March 13, 1989: Options on the gasoline futures were launched
  • October 2005: RBOB Gasoline deliverable contract began trading

What is the highest RBOB Gasoline has ever been its all-time high?

Based on the TradingView chart for RBOB Gasoline futures (RB), the highest price the RBOB Gasoline futures contract has ever reached was $4.3260 per gallon. This happened in June 2022.

What is the lowest RBOB Gasoline has ever been its all-time low?

Based on the TradingView chart for RBOB Gasoline futures (RB), the lowest price the RBOB Gasoline futures contract has ever fallen to was $0.3105 per gallon, which happened in July 1986.

Conclusion

You can use the RBOB Gasoline futures strategy to speculate on gasoline price fluctuations, diversify your portfolio into the energy sector, or hedge your exposure in the market.

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