Crack Spread
A crack spread is the difference between the price of refined products, such as gasoline and diesel, and the crude oil used to make them. It approximates a refiner’s margin; a common version is the 3-2-1 spread (three barrels of crude into two of gasoline and one of distillate).
Refiners don't really bet on oil prices; they bet on the gap between crude and the fuels they make from it. That gap, the crack spread, is the number refiners and energy traders watch.
- Category
- Commodities, Energy and Carbon
- Reading time
- 3 min
- Also called
- Refining margin, 3-2-1 crack, Refinery spread
- Updated
The crack spread in plain words
The crack spread is the gap between what a refiner pays for crude oil and what it gets for the products it makes, such as gasoline and diesel.1
It indicates refiners' short-term margin, though it excludes other variable and fixed costs.1
The 3:2:1 version subtracts three barrels of crude from two of gasoline and one of distillate.2
How to calculate a 3-2-1 crack spread
Get crude price
Take the crude benchmark in $/barrel.
Get product prices
Take gasoline and diesel spot or futures prices.
Convert units
Products are quoted per gallon, so multiply by 42 to get $/barrel.1
Weight the barrels
Use 2 gasoline + 1 distillate − 3 crude.2
Divide by 3
Express the result per barrel of crude.
Hedge if needed
A refiner can lock it in by buying three crude futures and selling two gasoline and one heating oil.3
Worked examples
Example 1 — Basic 3-2-1
$30/bbl crackHypothetical crude $75/bbl, gasoline $2.40/gal, diesel $2.70/gal.
| Gasoline per barrel | $2.40 × 42 = $100.80 |
| Diesel per barrel | $2.70 × 42 = $113.40 |
| Products | 2 × $100.80 + $113.40 = $315.00 |
| Crude | 3 × $75 = $225 |
| Spread per bbl | ($315 − $225) ÷ 3 = $30 |
This $30 is a short-term margin indicator, before other variable and fixed costs.1
Example 2 — Weak demand
Crack −$8.40Gasoline falls to $2.10/gal, others unchanged.
| Gasoline per barrel | $2.10 × 42 = $88.20 |
| Products | 2 × $88.20 + $113.40 = $289.80 |
| Spread per bbl | ($289.80 − $225) ÷ 3 = $21.60 |
EIA links declining margins to weak product demand even as capacity grows.2
Example 3 — A 5-3-2 version
$30.84/bblUsing Example 1 prices with a 5:3:2 ratio.
| Products | 3 × $100.80 + 2 × $113.40 = $529.20 |
| Crude | 5 × $75 = $375 |
| Spread per bbl | ($529.20 − $375) ÷ 5 = $30.84 |
The 5:3:2 ratio assumes five crude barrels make three of gasoline and two of distillate.4
3-2-1 vs 5-3-2 crack
| Aspect | 3-2-1 | 5-3-2 |
|---|---|---|
| Crude barrels | 3 | 5 |
| Gasoline : distillate | 2 : 1 | 3 : 2 |
| Fits | Gasoline-heavy refineries | More distillate output |
| Diesel weight | Lower | Higher |
Who uses crack spreads
Refiners
Hedging margins with futures.
Analysts
Gauging refinery profitability.
Traders
Taking views on product vs crude.
Supply watchers
Signals to raise output.
Advantages and disadvantages
Advantages
- Simple proxy for refinery margins.
- Hedgeable with liquid futures.
- Signals supply incentives.
- Comparable across regions.
Disadvantages
- Ignores operating and fixed costs.
- Real yields differ from the ratio.
- Regional crude and product prices vary.
- Spreads can swing violently in outages.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Mixing units
Forgetting the 42-gallon conversion.
Wrong ratio
Using 3-2-1 for a diesel-heavy plant.
Calling it profit
Ignoring costs beyond crude.
Mismatched benchmarks
Pairing crude and products from different regions.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- The crack spread is products minus crude.
- 3-2-1 is the common ratio.
- Convert $/gal to $/bbl with ×42.
- It proxies margins but excludes other costs.
- Refiners hedge it with futures.
Frequently asked questions
Why is it called a crack?
Can a crack spread be negative?
Is it a refiner's actual profit?
Further learning
- Futures Contract
The contracts used to trade cracks.
- Hedging
Locking in margins.
- Trading Pair
Trading one price against another.
- Volatility
Why spreads swing.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. Energy Information Administration. 3:2:1 Crack Spread (explainer) (opens in a new tab) Checked .
- U.S. Energy Information Administration. Global refinery margins fall to multiyear seasonal lows in September (opens in a new tab) Checked .
- CFTC. Speech by Commissioner Sharon Brown-Hruska: The Role of Futures Markets in the Energy Sector (opens in a new tab) Checked .
- Federal Reserve Bank of Dallas. Energy Indicators (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.