Crack Spread

[clarkrl2]

The crack spread for refining oil can be approximated by using the formula (42*(2*gasoline futures + heating oil futures))-(3*oil futures). I am updating this weekly on a spread sheet and will share the information for anyone interested.

Modified 12/30/2010
The crack spread is the cost in cracking a barrel of crude oil into gasoline or other distillates. It is important to remember that when a barrel there are additional operating costs that are not included in the spread. So as an example if the crack spread is $10 per barrel the refining company has that gross margin between the cost of buying the oil and selling the refined product.

Modify 5/22/2011
Here is a link to the 1 month spread based on the 3:2:1 calculation I've been using. They also have a chart.

[clarkrl2]

The crack spread fell 12.41 the previous week to 12.26. With this spread the refiners should easily be able to make money. The 13 week average for the Q4 was 9.55 which compares to 8.35 in Q3. Oil futures and heating oil futures were in cantango (going higher for contracts further out) the gasoline futures were in backwardation (going lower for contracts further out).

I do not have any positions in refiners at this time although I have a bull call spread on Conoco Phillips (COP) which has a refining operation.

[clarkrl2]

Category	Current	5 Wk MA
Oil Invtories xSPR	-0.38%	-1.09%
Gasoline Inventories	-1.06%	0.51%
Refining Capacity	87.80%	86.72%
Gasoline Prices	2.35%	1.21%
Crack Spread	12.23	11.452

[clarkrl2]

The crack spread jumped again this week.

Category	Current	5 Week MA
Oil Invtories xSPR	-1.21%	-1.39%
Gasoline Inventories	1.49%	0.75%
Refining Capacity	88.00%	87.80%
Gasoline Prices	0.59%	1.46%
Crack Spread	14.49	12.084

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	-0.66%	-1.31%
Gasoline Inventories	2.34%	0.85%
Refining Capacity	86.40%	87.58%
Gasoline Prices	0.62%	0.87%
Crack Spread	13.29	12.53

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.78%	-0.60%
Gasoline Inventories	2.02%	1.18%
Refining Capacity	83.00%	86.58%
Gasoline Prices	0.49%	0.82%
Crack Spread	15.69	13.622

This week's reports came out on Thur due to the Martin Luther King holiday. The crack spread looks good but HOC, TSO, VLO are all trading near their 52 week highs. Earnings for VLO and TSO should come out before HOC. VLO reports on Jan 26, TSO Feb 2, and HOC Feb 21 according to Yahoo. I expect the quarters to look good.

[clarkrl2]

I am a little surprised by this weeks jump in the crack spread. Inventories are increasing for both oil and distillates however the price of oil appears to have decreased at a faster rate than that of the distillates.

Category	Current	5 Week MA
Oil Invtories xSPR	1.46%	0.00%
Gasoline Inventories	1.05%	1.17%
Refining Capacity	81.80%	85.40%
Gasoline Prices	0.19%	0.85%
Crack Spread	18.84	14.908

[yclept]

The price of oil is going up rapidly. The price of gasoline is going up rapidly -- they're obviously in a race for my wallet!
I would think increasing prices in both give refiners a nice boost as the value of their inventory (both crude and product) are simultaneously going up.
Even if the spread remains constant, they'll probably get to book that rise in inventory value as profit, as I don't see the price of oil or gasoline coming down anytime soon. A billion here, a billion there ...

Misattributed

A billion here, a billion there, pretty soon, you're talking real money.
Although often quoted, it seems Dirksen never actually said this. The Dirksen Congressional Research Center made an extensive search when fully 25% of enquiries to them were about the quotation. They could find Dirksen did say "a billion here, a billion there", and things close to that, but not the "pretty soon you're talking real money" part. They had one gentleman report to them he had asked Dirksen about it on an airflight and received the reply: "Oh, I never said that. A newspaper fella misquoted me once, and I thought it sounded so good that I never bothered to deny it."

[/size]

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.76%	0.23%
Gasoline Inventories	2.65%	1.91%
Refining Capacity	8180.00%	1703.84%
Gasoline Prices	-0.29%	0.32%
Crack Spread	17.83	16.028

The crack spread still looks good. I am trying to enter a position in CVX but even after a weak earnings release the stock keeps going up. I still have my bull call spread on COP. What Yclept said about the refiners oil stocks going up is true. Also, any futures they have are also increasing in value as oil is in a steep contango.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.55%	0.58%
Gasoline Inventories	1.99%	2.01%
Refining Capacity	84.70%	83.54%
Gasoline Prices	1.00%	0.40%
Crack Spread	22.57	17.644

The crack spread is higher than it's been since before the financial crisis when oil was near $150/barrel. I don't know how long this will last but refiners will be making a lot of money while the spread is this high. The stocks HOC, TSO, and VLO are all setting 52 week highs but I may enter a position anyway with the spread this high.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.23%	0.76%
Gasoline Inventories	0.08%	1.56%
Refining Capacity	81.20%	82.50%
Gasoline Prices	0.26%	0.33%
Crack Spread	26.17	20.22

For the second week the crack spread is over 20. The refiners HOC, TSO, VLO are all doing very well. Unfortunately I don't have a position in any. Fortunately just about everything has been going up lately.

I keep looking for an entry point in CVX. I still have a May expiration bull call spread on COP.

[TD2K]

I work in the oil and gas industry and we aren't seeing a huge uptick in Refinery work. I think after the last crash, Refineries are going to be very leary about committing large amounts of money.

[mtntigger]

TD, you're at CP, right?

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.23%	0.65%
Gasoline Inventories	-1.16%	0.92%
Refining Capacity	79.40%	81.78%
Gasoline Prices	1.56%	0.54%
Crack Spread	23.72	21.826

As TD2K mentioned the refining capacity is down and has remained fairly low in spite of the rising crack spread. I am looking for an entry back into a refiner or COP or CVX.

The short call portion of my call spread on COP was assigned. I closed out the long call and made a very good profit. I may try a bull put spread on VLO if it falls just a tad lower.

[runewell]

I thought crack spread was going to be about something else

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	-0.09%	0.34%
Gasoline Inventories	-1.51%	0.41%
Refining Capacity	80.90%	81.60%
Gasoline Prices	6.08%	1.72%
Crack Spread	25.61	23.18

A day late with the data. At this time I don't have any position in any refineries. Valero reported they are expecting to miss earnings expectations due to some hedging. I thought I might be able to enter a PUT spread on Wed. but my price was not met.

[tyfighter3]

VLO went up today by 7.73%, over $2 a share.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.72%	0.33%
Gasoline Inventories	-2.34%	-0.59%
Refining Capacity	82.00%	81.64%
Gasoline Prices	4.05%	2.59%
Crack Spread	22.43	24.1

The gasoline inventories have been on the decline. I still don't have a position but would like to enter a bull put spread on VLO if I can get a good price.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.49%	0.32%
Gasoline Inventories	-1.83%	-1.35%
Refining Capacity	83.40%	81.38%
Gasoline Prices	1.34%	2.66%
Crack Spread	23.34	24.254

My bull put spread on VLO came within a penny of being filled. At this time it's probably risky to enter any positions because stocks are being sold indiscriminantly. It is my belief this will continue for several weeks. I still put spread order open but may cancel it at any time.

One interesting note is that while oil and gasoline futures declined last week, retail gasoline prices increase.

Week	Oil	Gasoline	Retail Gas
Current	98.6	2.85	$3.57
Last	106.23	3.05	$3.52
Two ago	101.93	3.03	$3.38
Three ago	96.96	2.87	$3.19
Four ago	87.65	2.68	$3.14

[clarkrl2]

I am a little late posting the results this week due to a short vacation. I am using data from Wed. Mar. 23 which is the normal day for release of oil and gasoline inventories.

Category	Current	5 Week MA
Oil Invtories xSPR	0.63%	0.40%
Gasoline Inventories	-2.36%	-1.84%
Refining Capacity	84.10%	81.96%
Gasoline Prices	-0.14%	2.58%
Crack Spread	21.6	23.34

With gasoline inventories falling that could be a plus for refiners. This is especially true when the refining capacity increases. The crack spread fell a bit but is still over 20.

Week	Oil	Gasoline	Retail Gas
Current	105.38	3.01	$3.56
Last	98.6	2.85	$3.57
Two ago	106.23	3.05	$3.52
Three ago	101.93	3.03	$3.38
Four ago	89.17	2.87	$3.19

The above table shows the extreme volatility of oil futures.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.82%	0.51%
Gasoline Inventories	-1.23%	-1.85%
Refining Capacity	81.40%	82.36%
Gasoline Prices	0.00%	2.83%
Crack Spread	23.59	23.314

I am a day late updating. This is the 52nd week of data. The crack spread is holding above 20 and oil inventories are rising while gasoline inventories are falling. This is favorable to refiners.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.56%	0.64%
Gasoline Inventories	-0.14%	-1.58%
Refining Capacity	84.40%	83.06%
Gasoline Prices	2.45%	1.73%
Crack Spread	25.26	23.244

The crack spread continues to rise.

Week	Oil	Gasoline	Retail Gas
Current	108.58	3.19	$3.68
Last	106.75	3.1	$3.60
Two ago	105.38	3.01	$3.56
Three ago	98.6	2.85	$3.57
Four ago	106.23	3.05	$3.52

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	0.45%	0.59%
Gasoline Inventories	-3.23%	-1.76%
Refining Capacity	81.40%	82.94%
Gasoline Prices	2.90%	1.50%
Crack Spread	27.96	24.35

The crack spread is up again this week. Gasoline inventories continue to fall while oil inventories are rising.

Week	Oil	Gasoline	Retail Gas
Current	107.7	3.24	$3.79
Last	108.58	3.19	$3.68
Two ago	106.75	3.1	$3.60
Three ago	105.38	3.01	$3.56
Four ago	98.6	2.85	$3.57

[rovo]

Yup. Crack spread is still rising, gasoline supplies falling, oil supplies up and capacity utilization is falling. Bad combination for perception of artificial constraint in gasoline supplies. They may be making good money now but they are also setting themselves up for a hard fall.

[clarkrl2]

I agree but it's going to be hard to determine how much longer the current trend will last. It could be a very short time or a very long time but most likely sometime in between. I think if you watch the spread and your long you can protect your profits by exiting when the spread falls. Unfortunately I missed the move this time and have no position long or short.

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	-0.64%	0.36%
Gasoline Inventories	-0.76%	-1.54%
Refining Capacity	82.50%	82.76%
Gasoline Prices	1.40%	1.51%
Crack Spread	24.52	24.586

The crack spread is down a little this week from last. I own a bull call spread on SUN which makes most of its money from its refining business.

Week	Oil	Gasoline	Retail Gas
Current	111.42	3.24	$3.84
Last	107.7	3.24	$3.79
Two ago	108.58	3.19	$3.68
Three ago	106.75	3.1	$3.60
Four ago	105.38	3.01	$3.56

Gasoline prices continue to increase. Sooner or later it will have a negative impact on the economy.

[Value Buy]

wish gas was $3.84
We are pushing $4.15 in Indiana

[clarkrl2]

Category	Current	5 Week MA
Oil Invtories xSPR	1.71%	0.58%
Gasoline Inventories	-1.20%	-1.31%
Refining Capacity	82.70%	82.48%
Gasoline Prices	0.91%	1.72%
Crack Spread	26.72	25.61

The crack spread is still above 25 and should help the profit margins for the refiners. VLO reported Apr. 26 at $0.17/share missing by $0.11/share. The share price didn't really get hit enough for an entry point. TSO reports May 4 and HOC reports May 5. I own a call spread on SUN which reports on May 5. They recieved a downgrade to sell on Apr. 13 which I believe created a buying oportunity. The share price seems to be near support at this time.

Week	Oil	Gasoline	Retail Gas
Current	113.56	3.38	$3.88
Last	111.42	3.24	$3.84
Two ago	107.7	3.24	$3.79
Three ago	108.58	3.19	$3.68
Four ago	106.75	3.1	$3.60

Value Buy pointed out gasoline is much higher in some parts of the country. The number I am posting is the national average posted by the energy dept. Here in Kansas you actually get gasoline for a little less than the average. Everyone feel free to post the price per gallon in your neighborhood.

[rovo]

clarkrl2, I just want to say thank you for tracking this stuff. I seldom comment on it but I always check when you update the data.

I don't understand how the refiners are not showing greater profits when the crack spread is so high.

Also, in the southern area of NJ the retail price for regular gasoline is 3.67 to 3.75.

[clarkrl2]

rovo I mentioned in post 15 VLO preannounced they would miss estimates due to hedging. Yahoo's article was the one I mentioned in my last post and it said VLO that Valero reported "Valero said its earnings were trimmed by 20 cents a share, mainly due to turnaround-maintenance delays at its refineries." A Marketwatch article said they expect second quarter earnings to be stong but they didn't give a target. I am interested in the profit margin on throughput barrels but do not have any information at this time.