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What Drove RBOB Gasoline Prices to Recover?

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Retail average regular gasoline prices

The EIA (U.S. Energy Information Administration) reported U.S. retail average regular gasoline prices at $2.22 per gallon on November 2, 2015. This represents a decrease of ~0.17% from the price of $2.23 per gallon recorded on October 26, 2015. Prices are 25.6% lower than they were a year ago.

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RBOB gasoline front month futures prices

The EIA (U.S. Energy Information Administration) reported US RBOB (reformulated blendstock for oxygenate blending) gasoline front month futures prices at $1.41 per gallon on November 2, 2015. Prices increased by ~7.7% from $1.30 per gallon recorded on October 23, 2015. Prices are 35.3% lower than they were a year ago.

Price differential between RBOB gasoline and regular gasoline

RBOB gasoline is more expensive to refine. More vitality and exertion are required to pull a percentage of the extra hydrocarbons out of the fuel. CRBOB (conventional reformulated blendstock for oxygenate blending) gasoline refining is even more expensive. CRBOB is used for refining in California, so California’s gasoline prices are higher than US average gasoline prices.

RBOB gasoline prices fell more than regular gasoline prices compared to prices a year ago. RBOB gasoline prices recovered, while regular gasoline prices continued to tumble.

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RBOB gasoline prices are driven by blending component stocks, which fell by 2.7 MMbbl for the week ended November 2, 2015. Regular gasoline stocks also declined, which we saw in the first part of this series. Due to various applications of RBOB gasoline and availability at lesser prices, RBOB gasoline demand increased. An increase in demand is the key reason for the slight recovery in prices.

Who gains? Who loses?

Lower prices of RBOB gasoline and regular gasoline are bearish for refiners. It decreases refiners’ revenues since they have to sell their products at lower prices. Refiners such as Chevron (CVX), Tesoro (TSO), Western Refining (WNR), Valero Energy (VLO), and Phillips 66 (PSX) will suffer from low prices. But increased demand could boost the price of gasoline, which would be positive for these companies.

Phillips 66 (PSX) and Valero Energy (VLO) account for 13.9% of the iShares US Oil & Gas Exploration & Production ETF (IEO).

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