Gasoline Trading Guide: What Is Gasoline and How to Trade It

Gasoline (RB) is one of the most popular energy commodities and byproducts of Crude Oil (CL) frequently traded by energy traders, along with Heating Oil (HO). Let’s take a closer look at this commodity, where it comes from, what drives gasoline prices and how to trade it:

TL;DR

• Gasoline is an oil-derived commodity.
• The market for gasoline extends beyond powering vehicles and machinery, as traders can use it for portfolio diversification and speculation.
• Factors potentially affecting its price include crude oil prices, the weather, the driving season, the regulation surrounding environmental protection, the USD, and OPEC+ meetings, among others.
• To get exposure to gasoline price volatility, traders can use trading styles such as day trading and swing trading.
• There are various strategies to trade gasoline like trading economic data with news trading, breakout trading, support and resistance trading, range trading, and trend trading.
• As a CFD provider, Plus500 offers traders exposure to gasoline prices with Contracts for Differences (CFDs) on gasoline, CFDs on commodities-related Exchange-Traded Funds (ETFs) and CFDs on shares of companies in the oil-related business.
• The gasoline (RB) CFD on Plus500 tracks the price of RBOB gasoline futures contracts traded on the New York Mercantile Exchange (NYMEX) from the CME Group. The quote displayed on Plus500 shows the RBOB futures price with Plus500 spreads.
• Futures on gasoline can be described as financial agreements where two parties commit to purchasing (or selling) a certain amount of gasoline at a prearranged price on a set date in the future.

What Is Gasoline?

Gasoline is a complex mixture of hydrocarbons powering countless vehicles across the globe derived from crude oil, a fossil fuel extracted from underground deposits. Refineries play a crucial role in transforming this thick, unusable crude oil into a variety of byproducts, with gasoline being one of the most important.

How Can Gasoline Be Used?

Beyond powering vehicles like cars, motorcycles, and boats, gasoline also fuels a broader range of applications, such as equipment and tools used in construction, farming, and forestry, as well as portable and emergency generators for electricity.

Who Are the Biggest Gasoline Exporters?

Since gasoline is refined from crude oil, understanding the major crude oil exporters sheds light on the biggest gasoline exporters as well.

As of 2022, the Organization of the Petroleum Exporting Countries (OPEC) holds the biggest share of the world’s proven crude oil reserves (79.5%), with Venezuela (24.4%), Saudi Arabia (21.5%), Iran (16.8%), and Iraq (11.7%) boasting the most significant reserves.

While OPEC members contributed to a significant portion of global crude oil production in 2022 (38%), especially Saudi Arabia (13.2%) and Iraq (5.5%), other players like the United States (14.7%), Russia (12.7%), and Canada (5.6%) are also major contributors.

The oil market that fuels our gasoline needs is a complex ecosystem teeming with diverse players. Producers extract the crude oil, oil companies manage vast reserves, refiners transform it into gasoline and other products, while sellers and distributors ensure it reaches storage facilities, gets transported efficiently, and ultimately arrives at gas stations.

Traders seeking exposure to the gasoline market by trading CFDs on Shares have several options on Plus500 (availability subject to regulation), with a few firms even being among our list of Top European Stocks.

Major oil companies like ExxonMobil (XOM), BP (BP-L), Chevron (CVX), and TotalEnergies (TTE.PA) offer broad exposure to the oil market.

For those interested in a more country-specific approach, national oil companies could be considered, such as Saudi Aramco (Saudi Arabia), Pemex (Mexico), CNPC (China), PdVSA (Venezuela), Petrobras (Brazil), and StatOil (Norway).

Finally, traders who would like to focus on the refining aspect of the gasoline supply chain can look at companies like Marathon Petroleum (MPC), CVR Energy, and Valero Energy (VLO).

What Drives Gasoline Prices?

To gain a deeper understanding of how to trade gasoline effectively, you should first familiarise yourself with the factors that can influence the price of this commodity, such as the following:

Crude Oil Price

Gasoline is a refined product of crude oil, so its price is heavily influenced by fluctuations in crude oil prices.

Refining Costs & Capacity

Refining costs can be another major factor that impacts retail gasoline prices, because the refining process itself consumes energy and resources. Any price increase for these inputs can translate to higher refining costs. Additionally, limited refining capacity, due to shortages or disruptions, can restrict gasoline supply and push prices up even if crude oil prices remain stable.

Transportation & Distribution

Delivery costs play a major role and include charges for pipelines and costs linked to the transportation method used. Additionally, regional variations in gasoline prices can arise depending on the distance from refineries. Finally, disruptions in transportation and distribution like pipeline leaks, accidents, or even broader events like strikes or wars can temporarily limit supply in specific regions, which can influence the supply and demand dynamics of gasoline and influence its prices.

Taxes

Depending on the location, federal, state, and local government taxes can be another contributor to the retail price of gasoline.

Gasoline Quality & Formulation

The grade (regular, mid-grade, premium) and specific formulation of gasoline used in a specific region of the world can also influence prices. Certain areas might require specially formulated gasoline to meet stricter environmental regulations or address specific air quality concerns, which might involve additional refining processes.

Seasonality (Driving Season And Weather)

Summer driving seasons and weather extremes (hotter or colder) can influence gasoline prices. Increased summer demand puts pressure on suppliers, while extreme weather can impact both demand (A/C or heater use) and refining capacity (maintenance).

Environmental Regulations

Environmental regulations can directly influence prices by potentially requiring cleaner gasoline formulas or biofuel blends like ethanol, which often influence refining processes. They can also indirectly impact prices by pushing for fuel-efficient cars and cleaner energy sources, potentially affecting the demand side of gasoline.

In addition to all the above factors, traders should also take into account the stage of the current global economy, such as economic recession or boom, as it might affect the demand for gasoline, as well as the drivers that can influence oil prices, such as the value of the American Dollar on the Forex market, geopolitical events, decisions from the OPEC+ members, and trader sentiment.

What Are Gasoline Trading Hours?

The market hours for gasoline trading on the NYMEX are from Sunday to Friday, spanning 6:00 PM to 5:00 PM Eastern Standard Time (10:00 PM GMT). There is a daily 60-minute break at 5:00 PM Eastern Standard Time (09:00 PM GMT)*.

*Gasoline CFDs trading hours may differ on Plus500. See the instrument details on the trading platform to find out more about specific trading hours.

Advantages and Disadvantages of Gasoline Trading

Advantages of Trading Gasoline

• Widely Used Commodity in Today’s World: Gasoline, the lifeblood of modern transportation, underpins not only our vehicles but also a variety of industries and residential uses.
• High Liquidity: Its ever-increasing demand has become a potential reason for traders seeking to capitalise on its value and its inherent volatility to get into gasoline trading. This popularity particularly stems from its high liquidity, allowing traders to easily enter and exit positions.
• Diversification: For those with a strong understanding of the market and a robust risk management strategy, gasoline can be used as a diversification option within a broader investment portfolio.

Risks of Trading Gasoline

• Volatility: While volatility may offer the potential for profits, gasoline price swings can lead to substantial losses if not carefully managed.
• Leverage: If you trade gasoline with derivative financial instruments, then you’re likely going to use leverage and margin trading. Because leverage magnifies all price movements, traders can face significant losses when gasoline prices move against them.

Gasoline Trading: 3 Ways to Analyse Gasoline Prices

When learning how to trade commodities, there are three popular ways to analyse prices: fundamental analysis, technical analysis and sentiment analysis. Let’s take a closer look at these analysis methods:

Gasoline fundamental analysis delves into the economic, geopolitical, and supply-demand factors that drive gasoline prices. By analysing these fundamentals, traders aim to identify potential disconnects between the current market price and the intrinsic value of gasoline, which can offer potential trading opportunities if there is a difference between the market gasoline prices and its potential value based on its underlying fundamentals.

Technical analysis uses historical prices, charts, trend and volume analysis to try to forecast potential future price movement of gasoline. A wide range of trading tools like trend lines, chart patterns like double tops, and technical indicators like the Relative Strength Index (RSI) can be applied to charts by technical traders.

While technical and fundamental trading methods mostly focus on relatively objective data, sentiment analysis adds a psychological side to trading by gauging the market mood. It intends to understand and measure the way emotional, psychological and cognitive behavioural biases can influence trader decisions when trading gasoline. Overconfidence bias, confirmation bias, loss-aversion bias and the Fear of Missing Out (FOMO) are a few examples of these biases.

How to Trade Gasoline

The way you decide to trade Gasoline depends on your chosen regulated broker, local regulations, and available products. Here are some popular options for online exposure to the Gasoline market*:

• Gasoline CFDs (Contracts for Difference);
• Gasoline ETFs (Exchange-Traded Funds) on Gasoline;
• Gasoline ETFs on Gasoline-related Companies;
• Gasoline Futures Contracts;
• Gasoline Options Contracts;
• Gasoline Company Stock Trading;

You can also trade Gasoline indirectly through CFDs on ETFs that track the price of Gasoline or that include companies within the Gasoline industry such as stocks like Royal Dutch Shell.

*Availability based on regulation.

What Are Gasoline CFDs?

When using Plus500 to trade gasoline, you’re trading Contracts For Difference (CFDs) that track the price of gasoline. CFDs are derivative products that you can trade on Plus500 that give you exposure to gasoline price fluctuations.

When trading gasoline CFDs, you do not own the underlying commodity but exchange with your CFD issuer the price difference between the value of your gasoline CFD position when you open your trade and its value when you close it.

If you open a long position on gasoline, you anticipate the commodity price to increase. On the other hand, if you open a short position, you anticipate the price of gasoline to decrease.

With CFDs, you can trade gasoline by putting down a smaller amount of money, called the margin. This leverage allows you to control a larger position than you could afford with your own initial trading capital.

If gasoline prices go in your direction (prices going up with a long position and down with a short position), then your potential profits can be magnified because you control a larger position. However, if the gasoline market goes against you (prices going down with a long position and up with a short position), your losses will be higher as well.

How to Start Trading CFDs on Gasoline with Plus500

To get into gasoline trading, you should first have a strong understanding of the fundamental factors shaping the oil and gasoline market, as these factors, heavily influenced by supply and demand dynamics, play a key role in determining gasoline prices.

Once equipped with this knowledge, you can explore potential opportunities through gasoline-related CFD trading by following these steps (among other steps):

1. Write your trading and risk management plan.
2. Open a Plus500 trading account.
3. Choose a way to trade gasoline based on factors such as your trader profile, risk appetite and commodity trading strategy.
4. Set up your trading order (trade direction, size of your position, type of trading order, stop-loss, take-profit).
5. Open your position and explore the risk management tools that Plus500 offers.
6. Monitor your trade.

Discover how to trade Gasoline CFDs on Plus500 in the video titled ’How to Trade With Plus500’.

Gasoline Trading — Frequently Asked Questions (FAQs):

What are RBOB Gasoline Futures?

RBOB stands for “Reformulated Gasoline Blendstock for Oxygenate Blending”. RBOB Gasoline (RB) is the CME Group futures contract on gasoline, which is a refined byproduct of crude oil mostly used as fuel. Widely recognised as a benchmark for global gasoline prices, the RBOB contract is also one of the largest and most liquid markets for refined products.

How can I trade Gasoline?

Futures on gasoline and Contracts For Difference (CFDs) on gasoline, as well as CFDs on oil-related companies, are among the most widely used methods to trade gasoline.

How do I get started with Gasoline CFD trading?

Before opening a CFD trading account on Plus500, every CFD trader should determine the kind of trader they are, learn about how CFD trading works, and undertake research about the gasoline market. They should then choose a gasoline trading strategy and write down the trading setups to follow to open and close their gasoline CFD trades among other things.

What are some of the most common Gasoline trading mistakes to avoid?

Some common mistakes that should be avoided when trading gasoline include risking more money than you can afford to lose, not understanding the dynamics of the gasoline market before getting started, and not having a trading plan with money and risk management rules.