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The 5 Minute Guide to Gasoline ETFs

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Price drivers and three ETFs for investors to consider.

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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 US 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, 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.
  • US 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 US 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.
  • Strength of the US dollar: There tends to be a negative correlation between the US dollar and commodities, including crude oil. If the US dollar strengthens, commodity prices are likely to fall; conversely, as the US dollar falls, commodity prices may rise. Because commodities are priced in US dollars, they are essentially sold at a discount to foreign markets when the dollar is weak.
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