Gasoline and the US Energy Market’s Consumption

Today here in the US, our energy market consumption is topped by oil at 36%. Natural gas is a close second securing 26% of the market. Coal follows at 20%, with renewables accounting for 10% and finally leaving our nuclear power at only 8%.

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Gasoline is the byproduct of kerosene production and the refining of crude oil production. It actually became instantly popular with the invention of the automobile. A long term love hate partnership, to go places you must have fuel and gasoline is currently the most widely used and sought after fuel. From an investment prospective one would refer to gasoline in its proper term, Reformulated Gasoline Blend-Stock for Oxygen Blending (RBOB), or to the everyday guy unleaded gas futures.

Like any other commodity, gas experiences seasonal trending with its lowest dips occurring during winter months and peaking between April and May. This is part of the reason many say investing in the petroleum market is not for the faint of heart. It is affected by many factors. The US is the largest consumer of gasoline and how we choose to use it or not can have a major impact on global prices. Most RBOB gasoline consumed here in the US is used in cars, lawn mowers, generators, pressure washers and even household appliances. Additionally it can be used to remove paint or grease and is used to make weed killers and even waterproof detectors.

The cost of a barrel of crude oil affects the price of gasoline as gasoline is a natural byproduct of crude oil. Of course if the gasoline has a higher octane rating, it will have higher compression rates and also yield higher fuel efficiencies, oh and it will cost more too. You do get what you pay for not just in its performance but its adverse effect to our global climate. For every three barrels of crude oil that is refined about two barrels of gasoline can be salvaged. The Middle East remains the one of the upper top ten of crude oil producers worldwide with the USA and Russia not too far behind. As you can imagine tensions and trends in many foreign markets cause our prices to go up at the pump. Currently the US uses twice as much oil as it is able to produce so we still count on foreign oil and the other countries ability to keep things stable.

Aside from the amount of crude oil produced, the actual cost of a barrel of crude oil, the quality of the gasoline being made, or any geopolitical concerns we may all have, how we the US are using the fuel we do use, and basic speculation as to the market as a whole there is one other factor that could at any time severely impact the price we pay for gasoline and that is alternative fuels. Should an alternative fuel enter the market that is more cost prohibited, successfully enters and becomes popular, or is adapted for use in the same circumstances we are now using gasoline, this too would affect our gasoline end cost, since right now it’s got the market cornered.

RBOB gasoline futures, currently traded on the Chicago Mercantile Exchange is shown in US currency under the symbol “RB.” A single contract would span over 36 months and would encompass some 42,000 gallons of gasoline.

Some larger companies that deal heavily in crude oil also offer investment opportunities in RBOB gasoline too. Here are some solid companies you might take a look at:

  • Exxon Mobile (XOM)
  • Chevron Corporation (CVX)
  • Royal Dutch Shell (RDS-A)
  • Conoco Phillips (COP)
  • British Petroleum (BP)

 

Several products offer exposures to RBOB gasoline via ETF’s and ETN’s. This exchange traded structure has many advantages for one looking to invest in commodities, mainly there’s no need to start a futures account. ETF’s offer exposure to the futures through a single exchange traded ticker offering an investor not only RBOB but other commodities as well. Some great examples you may check into:

  • United States Gas Fund LP (UGA) 100%
  • Power Shares DB Energy Fund (DBE) 28.4%
  • Ipath DJ-UBS Energy Total Return Sub-IndexSM ETN (JJE) 11.7%
  • E-TRACS UBS Bloomberg CMCI Energy ETN (UBN) 9.1%
  • ELEMENTS Rogers Intl Commodity Energy ETN (RJN) 6.8%
Randy Johnson
 

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