What does Crack Spread mean?
In futures markets, crack spread refers to the simultaneous purchase of crude oil futures and the sale of petroleum products futures to establish a refining margin. The underlying is the difference between the cost of a barrel of crude oil and the market value of petroleum products that could be obtained from a barrel of crude after the oil is cracked or refined.
Futures Knowledge Explains Crack Spread
In crack spread, the relevant commodities are crude oil and the petroleum products such as gasoline or heating oil or a mix of these two in some ratio. For example, 3-2-1 crack spread consists of three crude oil futures contracts spread against two gasoline futures contracts and one heating oil futures contract. Crack spread depends to gross processing margin in refining a barrel of crude oil.