Refinery margin — from crude to products

Crack Spread Explained

The crack spread is the difference between revenue from refined products and the cost of crude oil — a key refinery margin benchmark used by refiners, traders, and analysts.

42 US gal/bbl
3:2:1 Common US ratio
$/bbl Crack unit
Gross margin Before opex

What is a crack spread?

The crack spread is the difference between the revenue from selling refined products (e.g. gasoline, distillate/heating oil) and the cost of the crude oil used to make them. It is a refinery margin indicator: it shows the gross margin (before operating costs) a refiner makes from turning crude into products. The name comes from “cracking” — the refining process that breaks heavy hydrocarbons into lighter products.

How it’s calculated

Units: Crude is quoted in $/barrel; gasoline and distillate in $/gallon. One barrel = 42 US gallons.

3:2:1 crack spread (standard US benchmark): for every 3 barrels of crude, the refinery is assumed to yield 2 barrels of gasoline and 1 barrel of distillate (heating oil/diesel).

3:2:1 formula
Product revenue (3 bbl) = (2 × 42 × gasoline $/gal) + (1 × 42 × distillate $/gal)
Crude cost (3 bbl) = 3 × crude $/bbl
Crack spread ($/bbl) = [Product revenue − Crude cost] ÷ 3

Simple 1:1 cracks: Gasoline crack = (42 × gasoline $/gal) − crude $/bbl. Distillate crack = (42 × distillate $/gal) − crude $/bbl (each in $/bbl).

Why it matters

Refiners use it to gauge profitability and to hedge (e.g. sell product futures, buy crude futures). Traders trade crack spreads as a single product (e.g. CME 3:2:1 crack spread). Analysts use it to compare refining margins across regions and over time.

Limitations

The crack spread does not include operating costs (labor, catalysts, utilities); real net margin is lower. It assumes fixed yield ratios (e.g. 3:2:1); actual refinery yields vary by crude type and configuration. It is a simplified benchmark for margin and hedging, not a full refinery P&L.