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The price of a barrel of crude oil and the various prices of the products refined from it are not always in perfect synchronization.. Crack spread refers to the overall pricing difference between a barrel of crude oil and the petroleum products refined from it.. The “crack” being referred to is an industry term for breaking apart crude oil into the component products, including gases like propane, heating fuel, gasoline, light distillates like jet fuel, intermediate distillates like diesel fuel and heavy distillates like grease.

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To mitigate pricing risks, refiners use futures to hedge the crack spread Futures and options traders can also use the crack spread to hedge other investments or speculate on potential price changes in oil and refined petroleum products.. Depending on the time of year, the weather, global supplies and many other factors, the supply and demand for particular distillates results in pricing changes that can impact the profit margins on a barrel of crude oil for the refiner.

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