RBOB Gasoline Prices Explained

RBOB gasoline prices rose at moderate levels as the U.S. inventories declined and OPEC saw solid demand supported by stronger economic growth. The rally stems from better economic performance in Brazil, Russia, India, and China. Additionally, the eurozone’s rebound prompted increased demand, leading to price hikes.

Why are RBOB gasoline prices fluctuating?

1. Global Crude Oil Market

The foundation of gasoline prices is the cost of crude oil, its primary feedstock. Here are the factors that stirred the global crude market in 2024:

Post-pandemic rebound – As economies reopened after the pandemic, oil demand surged and outpaced production straining its supply.

OPEC+ production quotas – Moreover, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) cautiously increased production throughout the year, balancing concerns about high prices while keeping its revenue. Thus, these factors combined create a volatile crude oil market directly impacting RBOB prices.

2. Refining Margins

The difference between the cost of crude oil and the price of gasoline plays a crucial role in RBOB pricing. Several factors squeezed refining margins in the previous year. These are:

Increased demand for distillates – Diesel and heating oil saw higher demand due to colder-than-average winters and increased industrial activity. Thus, these unpredictable weather concerns doubled production capacity, driving up RBOB gasoline prices.

Rising operational costs – Also, refineries faced higher costs for inputs like natural gas and labor which overlap margins and translate into higher RBOB prices. Therefore, tight refining margins meant that even small changes in crude oil prices had a magnified impact on RBOB costs.

3. Domestic Gasoline Supply and Demand

Additionally, the balance between gasoline supply and demand within the United States takes hold of its price fluctuations:

Hurricane disruptions – Multiple weather disturbances such as hurricanes in the Gulf of Mexico (a key refining hub for RBOB gasoline) temporarily shut down production facilities, further tightening supply which contributed to its soaring prices.

Changes in fuel regulations – Implementing new Environmental Protection Agency (EPA) fuel regulations added additional costs to refineries which manufacturers ultimately passed on to consumers through increased RBOB prices.

Generally, the interplay of these domestic factors, coupled with the global crude oil market dynamics, had a huge influence on retail RBOB prices.

4. Speculative Trading

The noise in the RBOB market mostly comes from speculative trading, where investors buy and sell contracts based on their expectations of future price movements. These are the top factors:

Heightened market volatility – The overall uncertainty in the oil market due to geopolitical tensions and economic factors encouraged increased speculation.

Increased use of financial instruments – Additionally, the growing use of financial instruments like options and futures contracts intensified the impact of speculative trading on RBOB prices.

Which variables impact the price of RBOB gasoline?

• Global Crude Oil Market
• Refining Margins
• Domestic Gasoline Supply and Demand
• Speculative Trading
• Currency Fluctuations

Where does RBOB gasoline come from?

RBOB gasoline ( reformulated blendstock for oxygenate blending ) powers most vehicles in the United States.

It is a product of distilling hydrocarbons from crude oil that is used to produce gasoline fuel. After it is distilled from petroleum, it is blended with ethanol to produce reformulated gasoline.

It contains 10% ethanol which makes it environmentally friendly. As a result, 30% of the U.S. market requires gasoline to be reformulated.

Additionally, it 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. Furthermore, its futures are listed on the Chicago Mercantile Exchange under the futures symbol RB.

What are the uses of RBOB gasoline?

Beyond powering cars and trucks, RBOB has several industry applications. These are the top uses of this commodity:

1. Transportation – The number one sector to which gasoline is serviced. From personal cars to public transportation, RBOB gasoline fuels the vast majority of the freight sector in the US.

2. Logistics and Supply Chains – RBOB-powered vehicles transport everything from groceries to medicines, and manufactured goods to keep supply chains functioning.

3. Construction and Agriculture – Construction equipment like bulldozers, cranes, and generators often run on RBOB gasoline which provides necessary power for construction projects. Additionally, farm machinery like tractors and harvesters rely on this commodity for vital agricultural tasks.

4. Aviation – Generally, jet fuel is the primary fuel for airplanes. However, RBOB gasoline plays a supporting role in ground operations at airports. This comes with tugs, refuelers, and maintenance vehicles.

5. Emergency Services – Ambulances, fire trucks, police cars, and rescue vehicles rely on RBOB for rapid response and efficient deployment.

6. Marine Transportation – Recreational vessels and some larger ships utilize RBOB for propulsion and power generation.

7. Industrial Applications – Some industrial facilities located in remote locations or lacking access to natural gas pipelines use this commodity to power generators and equipment.

8. Research and Development – RBOB serves as a vital material in research and development related to fuel efficiency, emissions reduction, and alternative fuel technologies.

What is the future price of RBOB gasoline?

Crude oil prices remain the number one cost driver of RBOB gasoline as it is the primary ingredient in most fuel-based products. However, here are the present and future factors that will likely influence its prices in 2030:

Going green or oil rush – If the shift towards renewable energy accelerates, RBOB demand will decrease and put downward pressure on its prices. Conversely, slower adoption or policy shifts favoring fossil fuels keep the need stronger, potentially pushing prices upwards.

Efficiency equation – Technological advancements in refining and engine technologies will squeeze more miles out of every gallon, effectively lowering the cost of gasoline. However, stricter regulations such as cleaner fuels require expensive upgrades, spiking RBOB prices up.

Tax – Carbon taxes or fuel subsidies significantly influence RBOB retail prices. Normally, predicting future fiscal figures is difficult. However, current trends suggest an increasing focus on environmental costs, ultimately leading to higher gasoline prices through taxation.

Overall, experts at Fitch Solutions predicted that RBOB gasoline prices will settle at $2.50 to $3.50 per gallon in 2030.