A calculation of the worth of a barrel of crude oil in terms of the value of its refined products, such as gasoline and heating oil. Crack spreads may be based on a variety of refinery models and also depend on the type of crude input. They are usually expressed in dollars and cents per barrel of crude.
To calculate the spread, the cents-per-gallon product prices are multiplied by 42 (the number of gallons per barrel) and subtracted from the crude oil price. For example, when heating oil futures cost $0.60 per gallon and Nymex division light, sweet crude oil is priced at $22 a barrel, the heating oil crack spread in dollars per barrel = $0.60 x 42 = $25.20 – $22 = $3.20.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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