Crack Spread

Picture buying a sack of wheat and selling flour made from it. Your profit depends entirely on the gap between the price of wheat and the price of flour, not on either price in isolation. Crack spread is that same gap applied to oil refining, the price difference between crude oil and a specific refined product like petrol or diesel.

A wider crack spread means refiners are earning more for turning crude into fuel, usually because fuel demand is running ahead of refining capacity somewhere in the world. A narrower crack spread squeezes refiner margins even if crude prices themselves have not moved much, since the cost side and the revenue side of a refiner's business have effectively converged.

Crack spread is the raw ingredient that ultimately shows up in a refiner's Gross Refining Margin, and traders watch specific product crack spreads, the diesel crack, the petrol crack, almost daily as a leading indicator of how the next quarter's refining results are likely to look.