Gasoline Trading

Many traders are now considering gasoline trading following the recent surge in petrol prices in the UK and increases around the world. Gasoline prices hit an all-time high in the UK during 2021 and traders may be looking to claw back some of their increased fuel expenditure through purchasing gasoline futures or options. This 2022 article will cover gasoline trading economics, strategies, the range of instruments available and the pros and cons of the commodity. We have also compiled a list of the best brokers for gasoline trading below:

Top Gasoline Trading Brokers

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What Is Gasoline Trading?

Gasoline, not to be confused with natural gas or gasoline’s raw material form of crude oil, refers to the refined chemical product that functions as fuel for petrol vehicles. Often referred to as RBOB, which stands for ‘reformulated gasoline blendstock for oxygenate blending’, gasoline is produced to several octane standards that influence the price per gallon of the fuel.

Gasoline trading exposes investors to market determinants beyond those of unrefined crude. This creates additional opportunities for options and futures. Seasonal and regional issues that affect the refinement and transportation of gasoline can impact the value of gasoline, whilst leaving crude unimpacted.

The History Of Gasoline Trading

Gasoline trading prices have a fairly volatile history, with gasoline futures seeing a low of $0.44 per gallon at the height of the COVID-19 pandemic due to low demand.

Despite many of us seeing steady increases at the roadside pumps over the years, the sale price of consumer gasoline is not always correlated to the price that futures are trading at.

Historically, gasoline futures have been heavily impacted by economic health, with highs of over $3.50 per gallon in June 2008 and crashing down to just over $1.00 before the end of the year.gasoline trading guide for beginners

Gasoline Trading Economics

Various factors impact gasoline trading prices, with many price determinants rooted in its unrefined form of crude oil. The potential for demand-based price change was seen during the COVID-19 pandemic when gasoline trading prices plummeted due to the reduced use of vehicles during the global lockdowns.

Seasonal factors can also be a huge contributor, especially since a significant number of the refineries for gasoline are located on the Gulf Coast. Frequent adverse weather conditions in that region can subsequently impact the supply of crude oil to these refineries, as well as the delivery of gasoline from them.

Regional taxation can also impact gasoline separately from crude oil, with many jurisdictions applying a tax only when a substance is in refined fuel form. Conversely, some countries offer subsidies on fuel prices to encourage growth and these can also impact gasoline trading prices.

Despite a significant switch from diesel to petrol in Europe following the emissions scandal, long-term gasoline price considerations should also, in theory, take into account the emergence of the electric vehicle market.

However, electric vehicles are likely to have a slower uptake in emerging markets such as India and China, where the growth of the middle classes continues to grow demand for new cars. Advances in alternative and synthetic fuels could also have shorter-term impacts on gasoline trading prices.

The Gasoline Trading Price Today

How To Trade Gasoline

Here are the vehicles with which gasoline can be traded:

Gasoline Futures

Unlike many other commodities, there is no gasoline spot market available to everyday traders. However, traders can buy and sell gasoline futures contracts instead.

Trading gasoline futures involves committing to a contract to purchase the commodity at a set future time point. Futures contracts will often expire at a set time in the month with brokers and exchanges providing differing lengths of contracts to traders. The purchase price of a contract is agreed upon at the time of purchase and is based on the market prediction of the future trading price.

Futures can utilise leveraged trading to enhance profits from contracts but also come with the risk of increased losses. Traders can cash settle their contract ahead of expiry with another futures contract or sell their contract on to another buyer. It is important to settle a futures contract before its expiry to prevent you from needing to take delivery of thousands of gallons of gasoline.

Gasoline Trading Companies

An indirect method of investing in gasoline is through purchasing shares of companies that refine oil into gasoline. Examples of publically traded refinery companies include ExxonMobil, Shell, BP and Petrochina.

Often, these global gasoline trading companies are involved in more than just gasoline, producing other chemicals like diesel and natural gas. This means that the company’s share value will have far more determinants than merely the trading price of gasoline.

Gasoline ETFs

Exchange-traded funds, or ETFs, are day-tradable funds that act as trackers for specific markets, industry sectors or commodities. The main advantage of these over traditional funds is that ETFs can be bought and sold at any time throughout the trading day.

Commodities ETFs come in two main formats: funds that track the spot or futures price of an asset and ETFs that bundle together companies involved in the production of the commodity.

For gasoline, there is only one ETF that functions as a tracker: the United States Gasoline fund. Energy company ETFs, on the other hand, are numerous and traders can choose between trading the larger energy market or gasoline and fuel specialists.

Gasoline Options Trading

Options trading is perhaps the most well-known trading derivative and can be used for leveraged speculation on future gasoline trading prices. Options contracts differ based on where they are created, so make sure you are familiar with the specific options contracts in your region.

American-style options contracts provide traders with an option, though not the obligation, to buy an asset on a specified expiry date. They differ from futures in that options contracts allow traders to purchase contracts with set strike prices and expiry dates and they do not need to action the purchase if they would lose out.

Gasoline Spread Betting

Spread betting is another approach that can be used to speculate on gasoline trading prices through brokers. Spread betting can appeal to traders as it is a purely cash-based bet, with no physical gasoline involved.

Spread betting brokers will take the price that gasoline is trading at and offer a minimum increase and decrease value. If traders believe that the gasoline price will go past either of these values, they can bet on it, receiving cash for each ‘point’ the value of gasoline exceeds their bet.

Gasoline CFDs

CFDs operate on a similar premise to spread betting, where traders can speculate on price increases or decreases. As a result, they can potentially earn the difference between their predicted trading value and the gasoline trading price. CFDs often utilise leverage to increase gains but this also magnifies losses.

A CFD is an over-the-counter contract, meaning that they are offered by specific brokers rather than traded on an exchange. CFDs have no set expiry time but are subject to daily financing costs as well as additional overnight charges. Due to this, CFDs are primarily used as intra-day trading instruments.

Pros Of Gasoline Trading

Some of the benefits of trading gasoline include:

  • Range Of Available Trading Instruments – An area where commodities excel is the range of instruments to choose from. Gasoline trading is available with CFDs, ETFs, spread betting, options contracts and futures.
  • High Demand – The strong global demand for gasoline means that the market is likely to remain active and trade in large volumes. This enhances opportunities for successful derivatives trading and often leads to lower spreads.
  • Both Long & Short Term Trading Opportunities – The price of gasoline has both long and short term determinants. The future global move to electric vehicles may eventually lead to reduced demand for gasoline. In the short term, factors such as crude oil supply and global transportation difficulties provide opportunities for market volatility.

Cons Of Gasoline Trading

It is also worth noting the following drawbacks when trading gasoline:

  • Not As Volatile As Crude Oil – When using derivatives, volatile markets can potentially lead to greater profits. Of the two assets, crude oil is far more volatile, with one London-based trading house notoriously profiting over $500m when the oil futures value dipped below zero.
  • No Spot Trading – Many of those that invest in commodities may wish to trade at current market prices or even receive physical delivery of their asset. Unfortunately, there are no trading spot markets and, while traders could receive delivery of their gasoline, it is far more difficult to store than, for example, precious metal bullion.
  • Limited Share And ETF Options – Another area in which gasoline is lacking is the range of share and ETF options. With only one tracking ETF and no major companies dealing exclusively with gasoline, traders that wish to invest through stocks and shares may be out of luck.

Gasoline Trading Strategies

Here are a few ways in which traders can predict and speculate on the future trading price of gasoline:

Technical Analysis

A tried and tested method of price prediction for all trading markets is technical analysis. This involves using charting tools and overlays to identify both short and long-term trends in the value of an asset like gasoline. Through identifying levels of support and resistance, as well as established patterns in the market, traders aim to predict the next move.

Gasoline’s reduced volatility compared to crude oil may make long term price trends easier to identify, although, historically, external factors of supply and demand have proven to have a significant influence on gasoline trading economics.

Gasoline Trading News

This method of price prediction is less scientific than technical analysis but, for a supply-and-demand-sensitive commodity such as gasoline, it can often more accurately predict price movements.

By keeping up with gasoline trading news, whether this is upcoming taxation changes in a major region or the discovery of a new oil field for supplying crude oil, monitoring the price determinants of gasoline is crucial to creating an accurate gasoline price forecast. Changes in associated commerce areas such as the automotive industry will also have a significant impact on gasoline trading prices.

Hedging Strategies

Whether their predictions are long or short, there are hedging strategies that options traders can draw upon to cover themselves. Examples of these are the covered call and married put. These strategies involve opening opposing contracts to your prediction to protect against significant losses. However, these strategies are designed for a short term period of relative price neutrality. If a trader has strong bullish or bearish sentiments, a more advanced form of hedging may better suit their purposes.gasoline trading brokers and price factors

How To Start Trading Gasoline

Select Your Preferred Instrument

Depending on factors like price predictions, timeframe and desired leverage, different instruments will suit different traders. While trading gasoline futures and options are both viable, vehicles for long-term investments are unfortunately limited compared to other assets.

Finalise Your Gasoline Trading Strategies

In addition to deciding which method of price prediction you are going to employ, a solid and repeatable strategy must be decided upon to facilitate continued successful trading. The best traders take both of these elements into account to construct a complete picture of a market.

If you are going to engage in gasoline options trading, it is worth considering hedging strategies to give yourself the best chance at successful trading. With different gasoline options trading strategies available for every type of market environment and price prediction, it is worth investing some time researching tried and tested strategies.

Find Gasoline Trading Brokers

When looking for gasoline trading brokers, it is important to first ensure they support the instrument that you wish to trade with. The next step is to check that they are a legitimate trading provider and, ideally, are monitored by a trustworthy regulator. Positive customer reviews and recommendations from trusted websites are also green flags when checking out gasoline trading companies.

As competitive spreads and fees are never far from a trader’s mind, it is worth delving into pricing structures and comparing gasoline trading brokers to their competition. Other aspects worth considering are margin and leverage capability, available trading platforms and deposit and withdrawal methods.

Open An Account

After completing your due diligence and deciding on a brokerage or exchange, the next step is to open a trading account.

Before depositing funds, some brokers may be required by their regulators to complete a know-your-customer (KYC) check to verify your identity and financial status. Verification can sometimes require personal documents and financial statements, so it is imperative to make sure you only register with legitimate gasoline trading brokers.

Once your account is fully set up and verified, it is time to deposit funds. This is normally a straightforward process as most gasoline trading brokers and companies support a wide range of methods for fast and secure deposits and withdrawals.

Place Your Trade

Now all of the legwork is complete, you can finally get started. It is important to stay on top of your trading strategy to both maximise profit and ensure that you do not end up needing to take delivery of thousands of gallons of gasoline. Use all the information above to inform entry and exit points.

Gasoline Trading Tips

If you are just about ready to start trading gasoline, here are a few final tips to help you trade:

Gasoline Trading Hours

When trading futures, the CME Globex operates local time trading hours of Sunday to Friday from 18:00 to 17:00 CST the next day. Trading stocks and ETFs will be subject to local market trading hours, while derivatives brokers will set individual opening hours.

Practice Trading

Paper trading is an excellent method of testing new strategies, where you can get a feel for unfamiliar markets and explore new instruments. Many gasoline trading brokers provide a demo account facility so that you can practise before risking real funds.

Final Word On Gasoline Trading

Gasoline may be a less popular trading asset than its raw state, crude oil, though global gasoline trading can still be a potentially viable source of profit. Whilst the trading price of gasoline largely reflects that of crude oil, it is also subject to separate factors such as regional taxation, changes in refinement costs and transportation.

A thorough understanding of gasoline trading economics can lead to successful speculation with gasoline futures and other derivatives such as options. Long-term gasoline investment can be tricky due to the lack of tracking ETFs but futures contracts can be leveraged to take advantage of long-term opportunities and trends.

FAQ

What Should I Look For In Gasoline Trading Brokers?

The ideal gasoline trading broker will vary depending on your specific trading needs, with many brokers and exchanges specialising in different trading instruments. However, universal positives to look out for in gasoline trading brokers include solid regulation, low fees, competitive spreads and a reliable trading platform.

Can I Use Gasoline For Options Trading?

Gasoline options contracts provide a great way to speculate on the price movements of the commodity and will be available through many gasoline trading brokers.

Which Factors Influence The Gasoline Trading Price?

The value of crude oil is a significant price determinant for gasoline but other factors include regional taxation, geographical supply issues of refined gasoline caused by environmental changes and refining costs and profits.

What Are Some Examples Of Gasoline Trading Companies?

Some examples of gasoline trading companies include ExxonMobil, Shell, BP and Petrochina. Many of these companies also produce other forms of energy, so share prices may not directly follow gasoline trading prices.

What Is The Difference Between Gasoline Trading & Crude Oil?

Gasoline is the refined product of crude oil that is used to power petrol vehicles. In terms of trading, crude oil is more volatile and a market with higher trading volume than gasoline.