The benchmark US Gulf Coast 3:2:1 crack spread fell ~13% to $16.65 per barrel in the week ending June 19, from $19.23 per barrel on June 12.
The 3:2:1 crack spread
The above chart represents the US Gulf Coast 3:2:1 crack spread over the last few days. The 3:2:1 crack spread 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 that these products are assumed to be produced from.
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. Last week, crude oil prices fell by ~0.6%, while gasoline prices fell slightly more—by ~1%. Diesel prices fell ~0.4%. Please read the previous articles to learn how crude and refined product (gasoline and diesel) prices moved last week.
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 Corp (TSO). All these companies are components of the iShares Global Energy ETF (IYE), and make up ~7% of the ETF. All of these companies have spun off some of their midstream assets to form MLPs or midstream companies such as Valero Energy Partners (VLP) and Tesoro Logistics (TLLP).
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). They are an important metric that drives refiner profitability and market valuation. So, this is something investors in refiner stocks should watch.
You can read more about crack spreads at Crack Spread 101 (Part 1: What’s a crack spread?).
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