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US Gulf Coast 3:2:1 Crack Spread Widened Last Week

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Nov. 20 2020, Updated 11:16 a.m. ET

Crack spreads

The benchmark US Gulf Coast 3:2:1 crack spread rose by ~9.3% to $19.23 per barrel in the week ending June 12, up from $17.594 per barrel on June 5.

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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, 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 increase when product prices increase more than the price of crude oil, or when the price of crude oil falls more than product prices. Last week, both crude oil and gasoline prices rose. Yet gasoline prices rose more, as we learned previously in this series. Diesel prices, meanwhile, continued to fall 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 (TSO). Together, these companies make up ~7% of the iShares Global Energy ETF (IYE).

A crack spread represent the price difference between refiners’ revenues—which are earned by selling finished refined products—and refiners’ costs—which are reflected in the price of crude oil. It’s an important metric that drives refiner profitability and market valuation. As such, investors in refiner stocks should keep an eye on crack spreads.

For more on this topic, read 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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