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Crack Spread Going Parabolic!



May 27, 2008 – Comments (3) | RELATED TICKERS: WNR , VLO , ANDV

Today, with oil at $128 and change per barrel, gasoline at 3.38 a gallon, and heating oil (diesel) at 3.79 at NYMEX, the crack spread is $19. For the refiners, this is great news. With crack spreads now going parabolic (only last week it was around $15), rather than the steady rise we have seen since the November lows (around $7), NOW is the time to get in to one or more refining stocks. Higher crack spreads always result in higher prices for the pure refiner stocks!

Here is your chance to take advantage of the increasing gasoline prices!

Disclaimer: I own VLO stock, and call options on WNR, VLO, TSO, and SUN.

3 Comments – Post Your Own

#1) On May 28, 2008 at 4:11 AM, Garranova (90.20) wrote:


does the spread hold if oil tanks?  honestly I can't figure out any correlation between crack spreads and the price of oil so maybe it is time to just forget about oil and enjoy the return of the crack spread.  Been holding TSO in Caps for months waiting for this to happen.

Do you have a favorite location for historical crack spread charts? 

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#2) On May 28, 2008 at 12:23 PM, leohaas (29.38) wrote:


The spread gets better if oil tanks! If oil were to resume its uptrend, then the spread would get lower. Long-term, I believe oil prices will continue to go up, putting pressure on the spread (and thus the refiner stock prices). Short-term I don't know where oil prices are going. However, demand for gasoline and Diesel is up due to the start of the summer driving season, and demand will remain relatively high through Labor Day. In this time of the year, it is really the demand that is driving the spread. Any drop in oil prices is just icing on the cake.

My favorite location for obtaining crack spread data is on a pay service. I will not copy their charts for obvious reasons. Other than that, I calculate the NYMEX 3-2-1 spread, using data available Bloomberg.

The 3-2-1 spread is the most-used. Refiners convert 3 barrels of oil into 2 barrels (84 gallons) of gasoline, and 1 barrel (42 gallons) of heating oil or Diesel. NYMEX is one of the most important oil markets in the world. Bloomberg lists:
 - the NYMEX Crude Future in $/barrel
 - the NYMEX Heating Oil Future in cents/gallon
 - the NYMEX RBOB Gasoline Future in cents/gallon

Today, at 11:23am, the numbers were $129.10, 381.88, and 340.14, yielding a spread of $19.6024 (yesterday's closing prices yielded $18.986).


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#3) On June 02, 2008 at 8:56 AM, saunafool (95.11) wrote:

I don't think there is too much correlation between oil prices and crack spreads. In the very short term--like a few weeks--there tends to be, but over longer periods I don't think so.

The reason is that there are two separate markets--the market for crude and the market for refined products. If there is tight supply in the market for refined products, the refiners will be able to pass higher crude prices on to consumers and still maintain high crack spreads.

The best example is what happened from 2000 to 2007. Oil quadrupled in price, and crack spreads went from $4 a barrel to over $20 a barrel. Higher crack spreads were driven by a lack of complex refining capacity in the U.S., increased consumption, and increased regulation creating mini-markets of boutique fuels. I think the refiners are going to have a tough time in the coming years as recession cuts U.S. demand for finished products and a lot of new refining capacity comes on line.

Yet, even in this environment, the refiners will likely outperform most other sectors. The U.S. still imports 3 million barrels per day of finished products, and people will stop buying a lot of other stuff before they stop buying gasoline. 

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