Crack Spread - Information

Discussion in 'Commodity Futures' started by sentrix, May 28, 2012.

  1. sentrix



    I am currently trading futures spread and I would like to focus on the crack spread a little bit more. However, I was unable to find some relevant info on it. I found just the basics, that means what is a crack spread and so on. Does anyone know some appropriate sources? (strategies, maths usage, NN and so on).

  2. stoic


    The Energy complex Crack Spread generally will be in 3 ratios. The 2-1-1, the 3-2-1, and the 5-3-2. To calculate the gross cracking margin, one converts the products to dollars per barrel. The prices used for the examples are:

    July WTI - CL = 91.15
    July RB = 2.8317
    July HO = 2.8343

    So the 2-1-1 ratio crack margin would be:

    Two barrels of Crude @ $91.15 = $182.30
    HO = 2.8343 x 42 = $119.04
    RB = 2.8317 x 42 = $118.93

    The sum of the products Is: $237.97
    Therefore the gross cracking margin is $237.97 - $182.30 = $55.67
    2-1-1 Crack spread is $55.67 / 2 barrels = $27.83 per barrel.

    The 3-2-1 ratio crack margin would be:
    3 barrels of Crude @ $91.15 = $273.45
    HO = 2.8343 x 42 = $119.04
    RB = 2.8317 x 42 x 2 barrels = $237.86

    The sum of the products Is: $356.90
    Therefore the gross cracking margin is $356.90 - $273.45 = $83.45
    3-2-1 Crack spread is $83.45 / 3 barrels = $27.81 per barrel.

    The 5-3-2 ratio crack margin would be:
    5 barrels of Crude @ $91.15 = $455.75
    HO = 2.8343 x 42 x 2 = $238.08
    RB = 2.8317 x 42 x 3 = $356.79

    The sum of the products Is: $594.87
    Therefore the gross cracking margin is $594.87 - $455.75 = $139.12
    5-3-2 Crack spread is $139.12 / 5 barrels = $27.82 per barrel.

    A vast majority of the time the difference between the cracking margin ratios is very small.

    If the trader expects the crack margin to decline, they buy the crude and sell the products (Sell the Crack). Of if a rise is expected, sell the crude and buy the products (Buy the Crack).
    Some traders feel the spread should be placed with a 1 month difference in the crude oil vs. the product months (i.e. July crude vs. Aug. Products). However in my analysis this makes very little difference. IMO the trader need not be so concerned with an attempt to match the exact positions used by the refiner to hedge their operation. Refiners may take futures positions based on other factors such as maintenance or temporary shutdown. Some feel the Brent should be used, this would be calculated the same.

    The Crack Spread Handbook from the NYMEX/COMEX can be found at:

    Also, one can get history (charts and Prices in PDF) back to 1986 for all the crack spreads as well as almost all commodity spreads (free for now) at:
  3. stoic gave all necessary info. A possible addition is there are exchange traded gasoline and HO crack spreads in NYMEX.
    CQG codes are HOECLE (heating oil/crude)and RBECLE (gasoline/crude). You can also view these spreads on CTS and x-trader

    these represent crack spread margin stoic calculated but with a twist.
    If you buy HOECLE, you are buying a margin which represents all crude oil converted to heating oil.
    so proper 3-2-1 spread can be constructed by buying 2 gasoline crack spreads and 1 heating-oil crack spread
  4. bone

    bone ET Sponsor

    Yep, you want to definitely use the exchange spreads ( RBCL and HOCL ) - legging those manually would be a shit show for sure.
  5. stoic


    It would be nice......But no liquidity.
  6. sentrix


    Thanks for the info. Hope I understand it much better now.

  7. bone

    bone ET Sponsor

    Actually, July RBOB future is ten tics wide on the bid / ask spread, and the July RBCL exchange spread is five tics wide on the bid / ask spread. The volume on the RBCL spread is weak, but you would not realistically be able to leg the spread better on a consistent basis using flat price futures. Asking for big trouble doing it that way IMO.