Crack Spread
The price difference between crude oil and refined petroleum products (gasoline, diesel), representing the refining margin.
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.
On the desk
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.