Energy & metals
What are Refinery Crack Spreads and how do they quantify the profit margins of converting crude oil into gasoline?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Crack spreads measure refiner profit margins by pricing the difference between crude oil futures and refined product futures (gasoline, heating oil), such as the CME 3-2-1 crack spread.
How it works
The 3-2-1 spread uses 3 crude contracts versus 2 gasoline and 1 heating oil contract to approximate a refinery's actual output ratio and hedge margin risk.
An example
A refiner buys CL futures and sells RB and HO futures simultaneously to lock in a crack spread margin before processing crude into products.
Risk & limitations
Crack spreads can compress rapidly during refinery outages or demand shocks, and seasonal product demand shifts alter the optimal hedge ratio.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.