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Trading Gasoline Futures

Updated on August 16, 2010

Trading Gasoline Futures

Trading different futures contracts in the Energy complex can definitely be a roller coaster, and trading gasoline futures in particular is no different. So much geopolitical tension and drama surrounds the average Energy commodity that it’s amazing what can drive prices up (or down, for that matter). Unleaded gasoline futures in particular can be volatile as heck, because for the most part they follow the crude oil market’s price movements, which we all know are volatile as heck as well. Gasoline futures underwent somewhat of a “renovation” back in 2006; they used to be called simply Unleaded Gas with a symbol of HU, but since the big change was made, they are now called Reformulated Gasoline Blendstock for Oxygen Blending (RBOB), with the new symbol of RB. Gasoline trades on the CME Group exchange, and is offered in all contract months (January through December). I will have to admit, this is one market in which I have never personally traded a futures contract or an option of any kind, primarily because the margin on these bad boys is so doggone expensive. That’s true for all of the Energy commodities really, but I’m just talking about ol’ Unleaded for this hub. I have followed and paper traded the market, though, just to get a feel for it, and let me tell you, volatility is the rule and not the exception in the gasoline futures market. Part of this is because of its close relationship to crude oil prices, but also because of its own supply and demand fundamentals.

Image courtesy of Google Images
Image courtesy of Google Images

RBOB Gasoline Futures Trading

One factor that drives gasoline futures upward is if there’s any kind of issues with refineries shutting down or being damaged, especially in the Spring time, since that’s right before the Summer months, where demand for gasoline reaches its peak (most people are hitting the road—and the air—for vacations and so forth during the Summer). But also, any type of extreme weather conditions in the Gulf of Mexico area can really cause gasoline futures prices to spike dramatically upward, due to the fact that most gasoline refineries are in that region. We saw this happen during Hurricane Katrina in 2005, as there were many refineries that were badly damaged by the storm. Due to these types of situations, and just due to the fact that gasoline futures are generally volatile no matter what, it would be a good idea to “ease” your way into this market by using options at first, or only trading one lot (futures contract) at a time, and by making sure that you have already planned to use protective stop-loss orders to keep you from getting too much on the wrong side of any one trade. Capital preservation is king, so don’t allow ego, emotion, hope, or any other flimsy thing to keep you from being reasonable and sound with your trading decisions. Trading gasoline futures is really not too different from trading any other futures product; discipline and sound money management principles must be in place to produce consistent profits.

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