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The 3:2:1 crack spread calculation starts with the spot price for two barrels of gasoline, added to the spot price for one barrel of heating oil, and then subtracts the spot price for three barrels of WTI crude oil.
The 3-2-1 Crack spread approximates a theoretical refinery crude yield that produces two barrels of gasoline and one barrel of diesel for every three barrels of crude input. In other words, the simplified refinery yield implied by this calculation is two-thirds gasoline, one-third diesel.
The 3:2:1 crack spread approximates the product yield at a typical U.S. refinery: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillate fuel.
Crack spreads are differences between wholesale petroleum product prices and crude oil prices. These spreads are often used to estimate refining margins. Crack spreads are a simple measure based on one or two products produced in a refinery (usually gasoline and distillate fuel).
Thus, for example, a 3:2:1 crack spread (the most commonly used crack spread for U.S. refining operations) denotes the spread between the cost of buying 3 barrels of crude oil and the revenues from selling 2 barrels of gasoline and 1 barrel of diesel fuel.
The 3-2-1 crack spread is a commonly used formula in the oil industry, expresses the theoretical margin in dollars per barrel. CME Group is the world's leading and most diverse derivatives marketplace offering the widest range of futures and options products for risk management.
In calculating the 3-2-1 crack spread, prices for heating oil futures are typically used instead. Below is an example of how to calculate the crack spread, using data from 2012. $ 79.44 profit / 3 barrels of oil. The crack spread, of course, is not a perfect measure of refinery profitability.
There are two primary types of crack spreads: spreads between crude and one product (ex: crude vs diesel) and spreads between crude and multiple products (eg: crude vs diesel, gasoline, and jet fuel). The 3:2:1 crack spread is the latter, comparing crude oil to gasoline and diesel prices.
Crack spreads are a major indicator of refiner earnings and valuations. Read up on the basics of crack spreads in our special crack spread primer series.
A 3-2-1 crack spread is the difference between the cost of three barrels of crude and the sum of two barrels of gasoline plus one barrel of diesel.