Crack spread

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A crack spread is a strategy employed in energy trading that involves buying crude oil futures and selling refined products (for example, Brent Crude Oil and Gas Oil). Any combination of energy futures can be used, provided that the number of crude contracts equals the number of product contracts.

The spread allows refiners to lock in the differential between refinery input and output prices, and profit from or protect against changes in that value.[1]

The name "crack spread" comes from the fact that the act of processing crude oil to make gasoline and heating oil is called "cracking" the oil.






References

  1. NYMEX Crack Spread Handbook page 5. New York Mercantile Exchange.