US Gulf Coast 3:2:1 Crack Spread Falls Last Week
Crude Oil Prices Feel the Heat as Refined Products Slow Down
Crack spread
The benchmark US Gulf Coast 3:2:1 crack spread fell last week, from $19.801 per barrel on May 15 to $18.435 per barrel on May 26. It was well on its way to recovery after it fell earlier in the week before taking the plunge on Tuesday.
The above graph represents the US Gulf Coast 3:2:1 crack spread over the last few days. It reflects a theoretical calculation for the difference between the price of two barrels of gasoline and one barrel of distillate fuel and the cost of three barrels of crude oil from which these products are presumably produced.
Crack spreads decrease when product prices increase less than the price of crude oil, or when the price of crude oil falls less than product prices. In the previous parts of this series, we looked at last week’s crude and refined product price movements.
Why watch crack spreads?
The wider the crack spread, the more profitable it is for refiners such as Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Tesoro Corporation (TSO). All these companies are components of the iShares Global Energy ETF (IXC) and make up 4.2% of the fund.
Crack spreads represent the price difference between refiners’ revenues achieved through the sale of finished refined products and refiner costs, the price of crude oil. So they’re an important metric that drives refiner profitability and market valuation.
You can read more about crack spreads at Crack Spread 101 (Part 1: What’s a crack spread?)
For the latest updates on the energy sector, read Market Realist’s Energy and Power page.
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