Trading gasoline crack

Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Commodities Oil. Oil Guide to Investing in Oil Markets. What Is a Crack? Key Takeaways The term crack is derived from the fluid catalytic cracking of crude oil, which is used to refine crude oil into petroleum products Trading crack spreads allow refiners to hedge their price risk.

Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Cracking is a technique used in oil refineries whereby large hydrocarbon molecules are broken down into smaller and lighter components.

Oil Refinery Definition An oil refinery is an industrial plant that refines crude oil into petroleum products such as diesel, gasoline and heating oils. Crack Spread A crack spread is the spread created in commodity markets by purchasing oil futures and offsetting the position by selling gasoline and heating oil futures. What Are Downstream Operations? Downstream operations are oil and gas functions that occur after the production phase to the point of sale.

Read how downstream companies make money. Intermarket Spread An intermarket spread involves purchasing long futures in one market and selling short futures of a related commodity with the same expiration. They do not take into consideration all refinery product revenues and exclude refining costs other than the cost of crude oil.

The chart above shows recent trends in a single product crack spread, or the difference between the U. Gulf Coast conventional gasoline spot price the black line and the Louisiana Light Sweet crude spot price the blue line. Crack spreads can be positive the grey shaded region or negative the red shaded region , depending on relative product prices.

By comparing the price of crude oil which is set in a global marketplace with the price of refined products which can be affected by local and seasonal factors , crack spreads can often give an indication of supply conditions in a given market. Add us to your site. Today in Energy. June 2, An introduction to crack spreads U. Even if you aren't 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 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. Energy Trading. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads.

Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Commodities Oil.