The Crack Spread is the difference between the price of crude oil and the prices of its refined petroleum products, such as gasoline and heating oil. It is used as a measure of refining profitability and is actively traded in futures markets as a spread trade. A widening crack spread indicates improving refinery margins, while a narrowing spread signals declining profitability.
Example
“A refinery trader monitors the crack spread by comparing the price of crude oil at $70 per barrel against gasoline futures at $2.50 per gallon. A widening crack spread indicates higher refining margins, making it profitable to buy crude and sell refined products.”