The 5 Minute Guide To Gasoline ETFs

In 1859, the first oil well was dug by Edwin Drake. Drake distilled the petroleum to make kerosene for lighting, discarding the other byproducts. More than 20 years later, with the invention of the automobile, gasoline was recognized as a valuable source of fuel. By 1920, more than 9 million gas-powered vehicles were on the road [for more gasoline news and analysis subscribe to our free newsletter].

Gasoline is one of the world’s most widely-used commodities and is a byproduct of crude oil. In the United States, where gasoline is used in cars and light trucks, boats, recreational vehicles, and farm, construction and landscaping equipment, consumption was equal to about 360 million gallons per day during 2011 – about one gallon each day for every person in the United States. The United States does not produce enough crude oil to match this demand for gasoline, and as a result, imports about 60% of the crude oil used by U.S. refineries.

RBOB,” or reformulated gasoline blendstock for oxygen blending, is a newer blend of unleaded gas that is prepared for the addition of 10% fuel ethanol, an alcohol-based fuel produced by fermenting and distilling corn and other starch crops.

Price Drivers

The largest factor in the cost of gasoline is the price of the crude oil from which it is produced. In 2011, the retail price of gasoline was based on the cost of crude oil (68% of retail price); refining costs and profits (11%); federal and state taxes (11%); and distribution and marketing costs and profits (9%). A variety of factors influence the price of gas [see also How To Profit From Rising Gasoline Prices], including:

  • Economic and political climate of the Middle East and North Africa (MENA) region: The area’s valuable oil reserves, production and refineries have incited decades of political unrest and fighting. Concern about near-term and future oil supply can cause drastic fluctuations in price.
  • U.S. hurricane season: The coastlines of Texas and Louisiana support a large concentration of offshore drilling platforms and refineries. The area can be greatly impacted by the U.S. hurricane season, halting production and leading to a short-term rise in oil and gas prices. Production was halted for almost three months, for example, following Hurricane Katrina in 2005. Modern platforms are built to withstand up to Category 5 hurricanes; however, many older platforms remain in use.
  • Demand during the summer driving season: The demand for gasoline typically spikes during the summer as more families travel for vacations. This increased demand and consumption can lead to higher prices [see also Bargain Shopping In Oil and Gas Stocks].
  • Strength of the U.S. dollar: There tends to be a negative correlation between the U.S. dollar and commodities, including crude oil. If the U.S. dollar strengthens, commodity prices are likely to fall; conversely, as the U.S. dollar falls, commodity prices may rise. Because commodities are priced in U.S. dollars, they are essentially sold at a discount to foreign markets when the dollar is weak.

Gas ETFs

RBOB gasoline futures contracts are traded on the CME under the ticker symbol RB. Each contract represents 42,000 gallons (1,000 U.S barrels) of RBOB gasoline, with a minimum price fluctuation of $0.0001 per gallon, or $4.20 per contract. Several exchange-traded funds provide various levels of exposure to the contract.

United States Gasoline Fund (UGA)

The United States Gasoline Fund is an exchange-traded security that tracks the movements of natural gas prices. UGA seeks to reflect the daily changes (in percentage terms) of the spot price of gasoline as measured by the daily changes of the unleaded gasoline futures contract, or RBOB. Its holdings include near-month RBOB futures, rolling when the near month contract is within two weeks of expiration, and specified U.S. Treasuries and cash. With an inception date of February 26, 2008, UGA has an expense ratio of 0.60%, total net assets of $74 million, and a three-month average daily volume of 37,000 [see also Want Juicy Dividend Yields? Buy the Top Five Commodity Megacaps].

PowerShares DB Energy Fund (DBE)

The PowerShares DB Energy Fund looks to track changes in the level of the DBIQ Optimum Yield Energy Index Excess Return plus interest income from U.S. Treasuries. The index is a rules-based index made of futures contracts on light sweet crude oil (WTI), heating oil, Brent crude, natural gas and RBOB. The fund is rebalanced and reconstituted each November. Launched on January 5, 2007, DBE has an expense ratio of 0.75%, net assets of $180 million and a three-month average daily volume of 62,000.

iPath Dow Jones-UBS Energy Subindex total Return ETN (JJE)

JJE provides exposure to the Dow Jones-UBS Energy Subindex Total Return, which reflects the potential returns from an unleveraged investment in energy futures contracts. Four energy-related commodities contract comprise the index: crude oil (39.46% as of March 31, 2012), natural gasoline (29.73%), unleaded gasoline (16.40%) and heating oil (14.41%). With an inception date of October 23, 2007, JJE has an expense ratio of 0.75%, net assets of $11 million, and a relatively low three-month average daily volume of 8,700 [see also Inside the Dividend Darling YMLP: Q&A With Darren Schuringa].

Not Just For Your Car

Gasoline is a byproduct of crude oil and is one of the most widely consumed commodities in the world. Investors can gain exposure to gasoline by purchasing the stocks of companies engaged in the oil and gas industry, through gas-based futures and options contracts, and through gas ETFs.

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Disclosure: No positions at time of writing.

About Jean Folger

Jean Folger is co-author of the award winning book Make Money Trading: How to Build a Winning Trading Business and is a frequent contributor to Futures magazine, and other financial news sites. She is co-founder of and system researcher with PowerZone Trading, LLC (, a company that develops commercial indicators and custom trading systems for TradeStation, NinjaTrader and MultiCharts trading platforms.
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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

4 Responses to “The 5 Minute Guide To Gasoline ETFs”

  1. [...] The ProShares Ultra DJ-UBS Crude Oil ETF (UCO) also had a strong performance today, gaining 2.5% during the session. After three days of decline, crude oil finally steadied today, prompting this ETF to rally during the last hours of trading. UCO eventually settled at its high of $31.98 a share [see also The 5 Minute Guide To Gasoline ETFs].  [...]

  2. [...] This article was originally written by Jean Folger, and posted on Commodity HQ. [...]

  3. [...] Upstream production typically includes all companies that get gasoline to the pump after the extraction process. This includes refiners, transportation, distribution and marketing. Chevron, Exxon and BP are also involved in this aspect of the retail gasoline supply chain [see also The 5 Minute Guide To Gasoline ETFs]. [...]

  4. [...] Upstream production typically includes all companies that get gasoline to the pump after the extraction process. This includes refiners, transportation, distribution and marketing. Chevron, Exxon and BP are also involved in this aspect of the retail gasoline supply chain [see also The 5 Minute Guide To Gasoline ETFs]. [...]

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