Definition
Crack Spread
The crack spread is the price difference between crude oil and the refined products (petrol, diesel) made from it, a key measure of refinery profitability.
When refiners 'crack' crude into petrol and diesel, the gap between product prices and crude cost is the crack spread, essentially their gross refining margin. A wider spread means more profit per barrel processed.
Indian refiners like Reliance and the public-sector oil marketers watch the Singapore gross refining margin (GRM) as the regional crack-spread benchmark. Strong crack spreads boost refiner earnings and the share prices of oil-refining companies on the Indian market.
Related terms
- Crude Oil FuturesCrude oil futures are contracts to buy or sell oil at a set price for future delivery, with MCX crude tracking the global WTI benchmark in rupee terms.
- Brent vs WTIBrent and WTI are the two main global crude oil benchmarks: Brent from the North Sea prices most international oil, while WTI from the US is lighter and a key American reference.
- OPECOPEC is the Organization of the Petroleum Exporting Countries, a cartel of major oil producers that coordinates output to influence global crude prices.
- Commodity HedgingCommodity hedging uses futures or options to lock in input or output prices, protecting producers and consumers from adverse moves in commodity prices.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.