crack spread - Investment & Finance Definition
The difference in price between the purchase of crude oil futures and the sale of heating oil and gasoline futures, or vice versa. It is an inter-commodity spread, which is the difference between the prices of a commodity, such as crude oil, and its products, such as heating oil and gasoline. The crack spread reflects the profit margins of oil refiners. Typically, heating oil prices are higher during the winter months, reflecting strong demand, and they usually rise more than the price of crude oil, which often increases the crack spread’s value ahead of winter. Spreads are typically traded by commercial users such as oil companies or gasoline refiners. By trading spreads, hedges can be moved from one contract month to another. Trading spreads also provides a method to recover costs incurred by storing or financing inventories.