What’s the Impact of Lower Crude Oil Prices on the Crack Spread?



Crack spread widens

The NYMEX front-month 3:2:1 crack spread rose by about 10.6% over the last week, from $13.68 per barrel on December 28, 2015, to $15.14 per barrel on January 4, 2016. Over the past month, the crack spread has been between $13 per barrel and $15 per barrel.

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Crack spread movement

As you can observe in the above chart, the crack spread narrowed between December 14 and December 28, even though crude oil prices were low. The narrower crack spread is mainly due to the rise in the inventory levels of refined products like gasoline and distillates. Demand is low due to mild weather, which has resulted in lower prices. As the crack spread represents refinery margins, the lower prices mean the crack spread has become narrower.

The crack spread widened by 10% from December 28 to January 4, as gasoline demand was expected to be higher during the holiday season, which would bring a slight recovery to prices. Heating oil prices were expected to rise due to colder temperatures. Collectively, these factors resulted in the spike in the crack spread.


A wider crack spread means increased revenues for refineries. The increase in revenues lowers operational costs, which increases the profitability of refiners such as Phillips 66 (PSX), Tesoro (TSO), Valero Energy (VLO), and Western Refining (WNR).

The wider crack spread increases refinery input, which is bullish for crude oil prices (USO). A rise in crude oil prices has a positive impact on crude oil producers such as ConocoPhillips (COP) and Apache (APA).

The wider crack spread encourages refineries to increase their production levels, which increases the transport volumes and revenues of MLPs such as Valero Energy Partners (VLP) and Phillips 66 Partners (PSXP).


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