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Crack Spreads
The crack spread represents the theoretical refining margin. If a crack spread is a positive number then the price of the refined products is higher than that of crude oil, the raw material, and the spread is profitable. If the spread is a negative number, the products are priced at less than the cost of crude and are not profitable.
The 3-2-1 crack spread is a commonly used formula in the oil industry, expresses the theoretical margin in dollars per barrel.
X (Heating Oil: $
per gallon x 42)
+
X (Gasoline: $
per gallon x 42)
minus
X (Crude Oil: $
per barrel)
=
Crack Spread: $
per barrel
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