In a mid-February Barchart article on the gasoline futures market, I concluded:
As we head into the 2025 driving season, where gasoline demand peaks, bullish and bearish factors pull the fuel futures in opposite directions. Expect lots of volatility in the gasoline futures market over the coming weeks and months.
Nearby NYMEX gasoline futures were at the $2.3368 per gallon wholesale level on February 12. In mid-March 2025, the price was lower as the 2025 driving season will begin over the coming weeks.
Seasonality versus energy policy- The forward curve
Gasoline prices tend to reach seasonal highs during the spring and summer as drivers put more mileage on their vehicles.
The forward curve for RBOB gasoline futures highlights that prices tend to reach seasonal highs during spring and summer and lows during fall and winter.
Meanwhile, energy policy under the Trump administration has taken a 180-degree turn from the Biden administration. U.S. policy has changed from supporting alternative and renewable fuel production and consumption to address climate change to a “drill-baby-drill” and “frack-baby-frack” approach supporting fossil fuel production and consumption. The Trump administration believes that more U.S. energy output will lower energy prices and inflationary pressures.
One of the Trump administration’s first trip abroad may be to Saudi Arabia
While President Trump’s administration attended a summit on the Ukraine war in Saudi Arabia, the trip likely also included discussions with the leading OPEC+ member. The international oil cartel recently announced it will increase output quotas in April 2025 after years of production cut extensions and quotas.
Increased cooperation with Saudi Arabia is critical to President Trump’s plans to lower U.S. energy prices. The bottom line is that more U.S. output is encouraged by less regulation, and OPEC+ production increases have weighed on crude oil prices. While the core inflation data excludes volatile food and energy prices, crude oil continues to be the energy commodity that powers the U.S. and the world. Oil and traditional energy are critical inputs in all goods and services prices, and reducing oil prices will likely lead to falling inflation.
The daily NYMEX crude oil futures chart shows the decline since the mid-January 2025 high. Crude oil prices reached a new 2025 low at $65.22 per barrel on March 5, with the continuous futures contract falling to the lowest price since May 2023.
The daily RBOB gasoline futures chart highlights the decline in gasoline prices since the January 15, 2025, high. Gasoline futures were approaching the $2 per gallon wholesale level in mid-March.
Better relations with Moscow are part of the plan to lower oil prices
In a departure from the Biden administration, President Trump has begun significant dialogue with Russia to end the Ukraine war. Meanwhile, one of the side issues of those discussions will likely be oil prices, as Russia has depended on elevated petroleum prices to fund its war machine. An end to the war will take economic pressure off Moscow, which could put additional pressure on oil prices.
Drill-baby-drill causes OPEC+ to increase output
President Trump consistently called for increasing U.S. oil production on the campaign trail, calling U.S. petroleum reserves “liquid gold.” The administration believes that increasing output will make the U.S. the world’s leading crude oil exporter, reducing OPEC+’s pricing dominance. Moreover, they believe that lower energy prices are critical for reducing inflationary pressures.
OPEC+’s announcement that it will increase production in April reflects the U.S.’s plans. The cartel knows that lower oil prices will reduce the economic benefits of rising U.S. production over the coming months. Moreover, if China’s economy improves, worldwide energy demand will increase, offsetting some production increases.
UGA is the gasoline ETF product
Given the shift in U.S. energy policy and OPEC+’s increase in output, we should expect lots of volatility in crude oil and oil product prices over the coming weeks and months. Geopolitical and global economic factors could trump, no pun intended, seasonality in gasoline prices as the market moves towards the 2025 peak driving season.
The most direct route for a risk position in gasoline is through the futures and futures options on the CME’s NYMEX division. Each gasoline futures contract contains 42,000 gallons of RBOB gasoline. At $2.1350 per gallon, a contract is worth $89,670. Initial margin at $7,029 per contract means a market participant can control one NYMEX gasoline contract for a 7.84% downpayment. The current margin levels require additional margin if equity declines below $6,390 per contract.
The United States Gasoline ETF product (UGA) provides an alternative to the NYMEX futures as it moves higher and lower with gasoline futures prices. At $59.88 per share, UGA had around $83.69 million in assets under management. UGA trades an average of 15,220 shares daily and charges around a 1% management fee.
April RBOB gasoline futures rose 5.26% from $2.2592 on January 30, 2025, to $2.3781 per gallon on February 12, 2025, before declining 12.95% to a $2.0702 per gallon low on March 11.
Over around the same period, UGA rose 5.79% from $63.08 to $66.73 before falling 12.27% to $58.54 per share. UGA does an excellent job tracking the prices of nearby NYMEX gasoline futures.
While gasoline is heading into the peak demand season, geopolitical events and worldwide economics will determine the path of least resistance of the oil product that continues to power U.S. and worldwide vehicles. Oil and gasoline prices soared after Russia invaded Ukraine in 2022. Time will tell if the traditional energy commodities decline if the war ends over the coming weeks and months despite seasonal factors.
