Crack Spread
The price difference between crude oil and refined petroleum products (gasoline, diesel), representing the refining margin.
Formula
3-2-1 Crack = (2 × Gasoline Price + 1 × Heating Oil Price − 3 × Crude Price) / 3
The crack spread measures the profitability of converting crude oil into refined products. It is calculated as the price of the refined products minus the cost of crude oil, expressed per barrel. The most common version is the 3-2-1 crack spread: 3 barrels of crude yield 2 barrels of gasoline and 1 barrel of heating oil (diesel).
Refiners use crack spreads to hedge their margins — going long refined products and short crude when they want to lock in a known margin. Traders watch crack spreads as a proxy for refining demand and supply balance in refined products.
Crack spreads spike when refined product demand surges (summer driving season, cold snaps) or when crude supply outpaces refining capacity.
Example
RBOB gasoline futures: $2.65/gallon × 42 = $111.30/bbl. Heating oil: $3.10/gallon × 42 = $130.20/bbl. WTI crude: $78.00/bbl. 3-2-1 crack = (2×$111.30 + 1×$130.20 − 3×$78.00) / 3 = $39.60/bbl gross refining margin.
Related Terms
Brent Crude
The global benchmark crude oil grade produced from the North Sea, priced in $/barrel and the reference for roughly two-thirds of the world's oil trade.
BeginnerCrush Spread
The price difference between soybeans and their processed products (soybean meal and oil), representing the processing margin for soy crushers.
AdvancedEnergy Complex
The collective term for energy-related commodities — crude oil, natural gas, refined products (gasoline, heating oil, diesel) — and the markets and instruments around them.
BeginnerHeating Oil
A distillate fuel oil used for space heating and as a diesel proxy, traded on NYMEX in $/gallon and a key component of crack spread calculations.
IntermediateRBOB Gasoline
Reformulated Blendstock for Oxygenate Blending — the US benchmark unleaded gasoline futures contract traded on NYMEX in $/gallon.
IntermediateSpread Trade (Commodities)
A trade that goes long one commodity contract and short a related one — exploiting price relationships between grades, delivery months, or related products.
IntermediateWTI Crude
West Texas Intermediate crude oil — the US benchmark grade traded on NYMEX, priced in $/barrel and settled at Cushing, Oklahoma.
Beginner