Gasoline

Trading gasoline, or petrol, is a popular means of accessing the energy market given its strong correlation to oil. Prices can be affected by a range of factors, from distribution costs to geo-political events. Gasoline is tradable via futures and options, as well as CFDs and stocks. In this tutorial, we dive into the basics of the commodity, the factors that drive prices, and how you can start trading at the top gasoline brokers.

Gasoline Trading Basics

RBOB gasoline (Reformulated Blendstock for Oxygenate Blending) is a fuel product which is manufactured by refining crude oil. As such, there is a strong correlation between gasoline and crude oil prices.

Gasoline is used primarily in transportation, including cars, motorbikes and aeroplanes, as well as fuel for farming, construction and forestry equipment. The United States is the world’s largest producer and consumer of gasoline. Other key suppliers are Middle Eastern countries such as Saudi Arabia and Iraq, as well as Russia, Canada and China.

Gasoline is commonly traded through derivatives such as futures and options via the New York Mercantile Exchange (NYMEX). You can also trade gasoline with online brokers using CFDs, as well as gasoline-related ETFs and stocks, such as ExxonMobil, BP and Shell.

The gasoline market can be volatile, with trading quotes impacted by crude oil, geo-political events, refining and distribution costs, and environmental concerns.

Gasoline Price Today

History & Production

In 1859, Edwin Drake discovered gasoline whilst distilling crude oil to produce kerosene. However, it was initially deemed a useless byproduct for several years. It wasn’t until the invention of the automobile in the 1890s that the widespread use of gasoline began. By 1920, 9 million road vehicles were fuelled by gasoline.

Gasoline is produced in oil refineries, which heat crude oil at various temperature points to separate it into various ‘fractions’ of component hydrocarbons. The boiling process produces gasoline as well as kerosene, diesel fuel and several other products. In the US, around 19 to 20 gallons of gasoline are produced from one 42-gallon barrel of crude oil.

Retail gasoline is sold in three grades: regular, midgrade and premium. These are determined by the octane levels which measure the resistance to combustion. Higher octane levels are more resistant which means the product is more stable and causes less wear and tear on a vehicle’s engine.

Largest Gasoline-Producing Countries

Why Trade Gasoline?

Global events such as 9/11 and the COVID-19 pandemic have led to significant swings in the price of gasoline. For example, the impacts of the Ukraine War in 2021 caused an all-time high of £1.91 per litre. This has created trading opportunities at competitive brokers.

In recent years, fluctuations of 6% have caused volatile movements of £10 or more, compared to previous years. As such, speculation has become a key driver of market value. This can be attractive for retail traders with high-risk, high-reward strategies.

What Influences The Price Of Gasoline?

Crude Oil Prices

Crude oil constitutes around 65% of the value of gasoline, according to the US Energy Information Administration (EIA). The main factors that impact crude oil prices are the strength of the US dollar, political events, weather conditions, competition from renewable energy solutions, and the overall state of the economy.

Grade

Trading prices are often impacted by the performance of the three grades of gasoline, dependent on its octane levels (regular, midgrade, or premium).

For example, if there is a shortage of high-octane fuel, the gap between the price of regular and premium gasoline could widen.

Refining Costs

Known as the ‘refining spread’ or ‘crack spread’, these costs are the difference in the price of crude oil when it enters the refinery and when it leaves as gasoline.

In 2022, there was a unique scenario where gasoline retail quotes remained steady, despite crude oil prices falling. A review found that the refining spread was responsible for around 40% of this gap.

Distribution Costs

The cost of moving gasoline from its raw state to end customers makes up around 14% of the value of the product. This includes transporting gasoline to remote destinations, which can lead to higher prices.

Other costs include regulatory requirements in other jurisdictions, such as adding ethanol to the final product, as well as localised economic conditions, which can increase prices in wealthier areas.

Political Events

Political unrest in oil-producing countries can cause volatility in gasoline prices. For example, before the Russia-Ukraine war, Russia had been oversupplying its gasoline to Europe. However, Russia’s own requirement for supply during the war has led to an imbalance in the ratio of supply to demand.

Seasonal Patterns

Gasoline prices typically rise ahead of the summer months, when more cars are expected on the roads. Conversely in winter, prices usually fall in line with inclement weather conditions keeping cars off the roads.

How To Trade Gasoline

• Futures – Futures contracts are agreements to buy or sell gasoline at a specific price in the future. Investors can trade RBOB Gasoline Futures at the New York Mercantile Exchange as a hedge against the movements of crude oil.
• Options – The NYMEX also offers an options contract on gasoline futures. A successful options trade occurs when the future gasoline price finishes above the strike price, and the difference between the two is greater than the premium paid.
• Contracts For Difference (CFDs) – With CFDs, two parties exchange the difference between the buy and sell quotes of the gasoline contract. CFDs typically use margin, or leverage, to magnify position sizes. For example, CMC Markets offers spot gasoline CFDs with a minimum spread of 2.50 and a 10% margin.
• Shares – You can speculate on the stocks of companies involved in the extraction, production or distribution of gasoline, such as ExxonMobil, Shell or Chevron Corporation. Top brokers offering shares in such companies include IG Index.
• Exchange-Traded Funds (ETFs) – ETFs are baskets of shares that track a specific market. Currently, the only pure gasoline ETF is the United States Gasoline Fund LP, although many major brokers also offer broad energy-sector ETFs, such as the PowerShares DB Energy Fund.

Benefits Of Trading Gasoline

• Speculate on crude oil – Gasoline trading is strongly correlated with the performance of crude oil and can create exciting opportunities. Economic growth can lead to an imbalance of demand and supply for fossil fuels, and cause gasoline prices to rise.
• Geo-political events can increase prices – The Organisation of the Petroleum Exporting Countries (OPEC) often experience political instability which can create a bullish gasoline market. This makes gasoline trading particularly suited to those who enjoy fundamental analysis.
• Environmental concerns – Global warming events, such as hurricanes in the US, can disrupt the production of gasoline, causing prices to rise.

Risks Of Trading Gasoline

• Environmental and ethical concerns – There are moral challenges in speculating on increasing prices of gasoline, given its impact on pollution and global warming. This may lead to more competition for renewable energy solutions.
• Regulation – Governments recognising the environmental impact of gasoline can implement taxes to discourage demand. Gasoline is already heavily taxed in many jurisdictions, including the UK’s ‘fuel price escalator’ which was introduced in 1993.
• Weakened economies – Gasoline can be a risky market to trade during a global recession or economic downturn.

Comparing Gasoline Trading Brokers

• Available assets – Choose a broker with a good range of gasoline-related products, such as CFDs and gasoline company shares and ETFs.
• Fees – Compare the broker’s spreads and commissions on gasoline. For example, Plus500 offers a spread of 0.005 pips on RB Gasoline with zero commission.
• Trading platform – Ensure the broker’s platform suits your trading requirements. Most leading gasoline brokers offer MetaTrader 4 or MetaTrader 5, though some may also provide proprietary software, such as XTB and eToro.
• Market analysis – Access to real-time quotes, plus gasoline news and analysis will be advantageous for trading strategies. This may include news analysis of the OPEC or major importing nations.
• Regulation – Make sure the broker is regulated by a reputable agency. For example, the Financial Conduct Authority (FCA) regulates the top gasoline brokers in the UK, such as Pepperstone.

Trading Hours

Gasoline is virtually traded 24 hours a day on the New York Mercantile Exchange (NYMEX). Sessions run from Sunday to Friday, 6:00 pm – 5:00 pm ET (10:00 pm – 9:00 pm GMT), with a 60-minute break each day commencing at 5:00 pm ET (9:00 pm GMT).

Trading hours may vary slightly depending on gasoline brokers.

Bottom Line On Trading Gasoline

Gasoline trading is a popular way to speculate on crude oil prices and gain exposure to vital commodities via CFDs, futures, shares and ETFs. Geo-political events and environmental impacts can create an attractive market to trade but can equally increase risk. Consider our list of top gasoline brokers to get started.

FAQ

Article Sources

Top Gasoline Producers By Country, 2021

Factors Affecting Gasoline Prices, EIA

Plus500 Gasoline Trading Conditions

UK Road Fuel Market Review