Ever since Henry Ford began mass producing autos, gasoline has undergone change. In the late twentieth century it went from leaded to unleaded. The New York Mercantile Exchange (NYMEX) began a contract for Unleaded Gasoline (first UR, then HU) in late 1984.
Environmental concerns over the additive methyl tertiary-butyl ether (MTBE) in unleaded drove the latest evolution. Beginning October 2005, NYMEX began trading a futures contract for delivery of Reformulated Blendstock for Oxygenate Blending (RBOB) alongside that for HU as unleaded was being phased out.
Because seasonal research is based on history and regulatory bodies require analysis of prices actually traded rather than of proxies, MRCI faced significant questions. Does RBOB behave like HU did? If so, how closely? Would seasonal research need to ignore gasoline for years?
|Unleaded/RBOB Gasoline Correlation Summary|
|Contract||% Correlation||Contract||% Correlation|
|Jan 07||98%||Jun 06||92%|
|Dec 06||99%||May 06||89%|
|Nov 06||99%||Apr 06||77%|
|Oct 06||98%||Mar 06||94%|
|Sep 06||96%||Feb 06||89%|
|Aug 06||96%||Jan 06||91%|
With gasoline such a huge and crucial market, MRCI decided to use its expertise at correlation analysis to study the problem. On the pages following, MRCI shows how closely each delivery month correlated. As you can see, for example, for the twelve months during which January 2007 Unleaded and January 2007 RBOB traded simultaneously, they correlated at a rate of 99%. All other delivery months correlated at rates from 89% to 99% except for April, normally a month fo transition from winter to summer blend.
With that reassuring study, MRCI decided to blend prices in order to continue pursing historical research. Thus, all price history through the June 2006 contract is HU; that from July 2006 forward is and will be RBOB.
In the charts below the black line in the upper portion of the chart represents the closing prices of the indicated Unleaded Gasoline (HU) contract. The red line represents the closing prices of the corresponding RBOB Gasoline (RBOB) contract. The blue line in the lower portion represents the difference of the two contracts with RB subtracted from HU.