Energy and natural resources
Crack spread (refining margin)
The gap between the price of crude oil and the prices of the fuels made from it.
Last reviewedWhat does Crack spread (refining margin) mean?
A crack spread is the difference between the price of crude oil and the prices of the products a refinery "cracks" it into, such as gasoline (petrol) and diesel. It is a simple guide to how much a refinery earns before its own operating costs. A common version is the 3-2-1 crack: three barrels of crude make two of gasoline and one of diesel. Example: crude at 80 a barrel, gasoline at 100 and diesel at 110 give (2 x 100 + 110 minus 3 x 80) / 3 = 70 / 3, or about 23 per barrel of crude. A refinery's actual margin also depends on its complexity, crude slate and costs, which is why complex refineries such as Reliance's Jamnagar can earn more than simple ones.
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Related terms
- MarginProfit on a sale, as an amount per unit or as a percent of price.
- CommoditizationWhen products become interchangeable and compete mainly on price.
- Capacity utilizationActual output as a share of the most that could be produced.
- FeedstockThe raw material fed into a process, such as naphtha or ethane for a chemical plant.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.