Crack Spread. DEFINITION of Crack SpreadCrack spread refers to the overall pricing difference between a barrel of crude oil and the petroleum products refined from it. The crack being referred to is an industry term for breaking apart crude oil into the component products, including gases like propane, heating fuel, gasoline, light distillates like jet fuel, intermediate distillates like diesel fuel and heavy distillates like grease. The price of a barrel of crude oil and the various prices of the products refined from it are not always in perfect synchronization. Depending on the time of year, the weather, global supplies and many other factors, the supply and demand for particular distillates results in pricing changes that can impact the profit margins on a barrel of crude oil for the refiner. To mitigate pricing risks, refiners use futures to hedge the crack spread. Technique_CR_CrackSpread.jpg' alt='Oil Price Crack Spread' title='Oil Price Crack Spread' />The wide Brent WTI spread foretells higher U. S. crude exports to come. Physical market tightness points to Brent being wellsupported. That means in order for t. U. S. oil production increases and the noise out of OPEC, it is clear that theres going to be a glut of oil on the market as we enter the summer driving. Todays Outright Spot Naphtha Prices mt Market Low High Mean Change CFR JAPAN 489. CFR KOREA Daesanbasis 490. Futures and options traders can also use the crack spread to hedge other investments or speculate on potential price changes in oil and refined petroleum products. BREAKING DOWN Crack SpreadThe traditional crack spread play used to hedge against these risks involves the refiner purchasing oil futures and offsetting the position by selling gasoline, heating oil or other distillate futures that they will be producing from those barrels. Refiners can use this hedge to lock in profit. View the latest oil gas industry statistics including oil prices, rig counts, production report oil imports. Find information for Crude Oil Futures provided by CME Group. View Quotes. New York Mercantile Exchange NYMEX Price Charts and Quotes for Futures, Commodities, Stocks, Equities, Foreign Exchange INO. Markets. DEFINITION of Crack A crack spread, or crack, is a term used in the energy markets to represent the differences between crude oil and wholesale petroleum product. Digimon World 3 Bin File there. A crack spread measures the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline and distillate fuel, that. Find information for NY Harbor ULSD Crack Spread Futures provided by CME Group. View Contract Specs. Petroleum Other Liquids. Crude oil, gasoline, heating oil, diesel, propane, and other liquids including biofuels and natural gas liquids. Natural Gas. Essentially, refiners want a strong positive spread between the price of barrel of oil and the price of the refined products, meaning a barrel of oil is significantly cheaper than the refined products. To find out if there is a positive crack spread, you simply take the price of a barrel of crude oil in this case WTI at 5. RBOB gasoline futures at 1. There are 4. 2 gallons per barrel, so a refiner gets 6. This is the most common crack spread play, and it is called the 1 1 crack spread. Of course, it is a bit of an oversimplification of the refining process as one barrel of oil doesnt make exactly one barrel of gasoline and, again, their are different product mixes depending on the refinery. So there are other crack spread plays where you buy three oil futures and then match the distillates mix more closely as two barrels worth of gasoline contracts and one worth of heating oil for example. These are known as 3 2 1 crack spreads and even 5 3 2 crack spreads, and they can also be used as a form of hedging for an investment in refiners themselves. For most traders, however, the 1 1 crack spread captures the basic market dynamic they are attempting to trade on. Trading the Crack Spread. Generally you are either buying or selling the crack spread. If you are buying it, you expect that the crack spread will strengthen, meaning the refining margins are growing because crude oil prices are falling andor demand for the refined products are growing. Selling the crack spread means you expect that the demand for refined products is weakening or the spread itself is tightening due to changes in oil pricing, so you sell the refined product futures and buy crude futures. Reading the Crack Spread as a Market Signal. Even if you arent looking to trade the crack spread itself, it can act as a useful market signal on potential price moves in both the oil and refined product market. If the crack spread widens significantly, meaning the price of refined products is outpacing the price of oil, many investors see that as a sign that crude oil will eventually rise in price to tighten the spread back up to historical norms. Similarly, if the spread is too tight, investors see that as a sign that refiners will slow production in order to tighten supply to a level where the demand will restore their margins. This, of course, has a dampening effect on the price of crude oil. So, whether you intend to trade it or not, the crack spread is worth keeping an eye on as a market signal.