How to Invest in Gasoline
Gasoline, more specifically RBOB Gasoline, is a petroleum-derived liquid mixture that has an energy density slightly lower than jet and diesel fuel but higher than high octane gas, biodiesel, or LNG. On average about 19.5 gallons of gas can be extracted from a 42 gallon barrel of crude oil.
Gasoline is one of the most important commodities in the world used primarily in the transportation industry in the U.S. This usage segment accounts for over 40% of global gasoline demand although emerging markets are quickly catching up in aggregate. It should also be noted that taxation and subsides also play a key role in demand for oil as heavily taxed nations such as those in Europe or Japan, tend to have higher average prices and thus are more easily discouraged than those nations with low fuel taxes such as those in the Middle East and other large oil producing nations.
For those looking to invest directly in gasoline, a limited number of options are available. While there are heavily traded futures contracts for the product, there are currently no pure play stocks or equity ETFs that invest in companies that exclusively produce gasoline and do not then refine it themselves from crude oil. With that being said, some larger oil firms, or more specifically, refiners, could offer a more targeted play on the industry in equity form. There are, however, a number of ETPs that offer exposure to the commodity\’s futures contracts either in a basket or pure-play form.
Ways to Invest in Gasoline
There are 3 ways to invest in Gasoline: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Gasoline ETFs?
For investors seeking exposure to RBOB gasoline, there is an ETF that focuses exclusively on this blend of oil. The United States Gasoline Fund (UGA) invests in near month RBOB futures, rolling exposure as expiration approaches. Investors should be advised that UGA does not seek to replicate movements in the spot price of gasoline, but rather deliver returns available through a futures-based strategy.
RBOB gasoline is included in a number of broad-based energy ETFs, such as the PowerShares DB Energy (DBE) and iPath Dow Jones-UBS Energy ETN (JJE).
What are Gasoline Futures?
RBOB gasoline futures are not quite as liquid as contracts representing WTI, but the market for exposure to this blend of oil is very liquid. RBOB gasoline futures are traded on the NYMEX under the symbol RB. Contracts represent 42,000 gallons, priced in dollars and cents per gallon. Contract months include 36 consecutive months.
The settlement for RBOB gasoline futures is physical, though there is a separate market for futures that are subject to financial settlement. Those contracts also trade on the NYMEX, under the symbol RT.
How to Buy Gasoline Stocks
Investors have the option of achieving exposure to prices of energy commodities by buying stocks of companies engaged in the extraction, refining, and sale of oil. Many of the major oil companies, including BP, ExxonMobil, Total, Royal Dutch Shell, and ConocoPhillips, will generally see their stock prices appreciate when gasoline prices rise. As such, investments in these companies can be an effective way to gain exposure to gasoline without exposing a portfolio to the nuances of futures contracts.
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