uploads/2015/06/crack-spread3.png

US Gulf Coast 3:2:1 Crack Spread Rises in the Week to June 26

By

Updated

Crack spreads

The benchmark US Gulf Coast 3:2:1 crack spread rose 4.4% to $17.385 per barrel in the week to June 26—compared to $16.65 per barrel on June 19.

Article continues below advertisement

About the 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 usually rise when product prices rise more than the price of crude oil or when the price of crude oil falls more than product prices. Read the previous parts in this series to learn how crude and refined product—gasoline and diesel—prices moved last week.

Why should you watch crack spreads?

The wider the crack spread, the more profitable it is for refiners like Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Tesoro (TSO). All of these companies are part of the iShares Global Energy ETF (IYE). They account for ~7% of IYE. All of these companies have spun off some of their midstream assets to form MLP (master limited partnership) or midstream companies like MPLX LP (MPLX) and Tesoro Logistic (TLLP).

Crack spreads represent the price difference between refiners’ revenue—achieved through the sale of finished refined products—and refiner costs—price of crude oil. It’s an important metric that drives refiner profitability and market valuation. This is something investors in refiner stocks should watch.

Read more about crack spreads at Crack Spread 101 (Part 1: What’s a crack spread?).

For the latest updates on the energy sector, visit Market Realist’s Energy and Power page.

Advertisement

More From Market Realist