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.
