What is the Crack Spread and How Does It Affect Oil Prices The Motley Fool. A full transcript follows the video. This video was recorded on April 6, 2. Sean OReilly Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, April 6, 2. Im your host, Sean OReilly, and joining me in studio today is Motley Fool Premium analyst and lover of Hawaiian pizza, Mr. Taylor Muckerman. Petroleum Other Liquids. Crude oil, gasoline, heating oil, diesel, propane, and other liquids including biofuels and natural gas liquids. Natural Gas. Whats up Taylor Muckerman Whats up OReilly Hows it going Muckerman Good. As long as it has bacon on it, too. WTI-Crack-Spread.jpg' alt='Oil Price Crack Spread' title='Oil Price Crack Spread' />OReilly Oh, thats the qualifier. Muckerman I dont necessarily like. I need some crunch. OReilly Ham and bacon would be a big thing in Hawaii, because a luau always has a pig, always. Muckerman For sure, either cooked on a spit or wrapped up in banana leaves and buried on top of some hot coals. What is the Crack Spread and How Does It Affect Oil Prices Plus, troubles for solar yieldcos and the tough market of offshore rigs. U. S. oil production increases and the noise out of OPEC, it is clear that theres going to be a glut of oil on the market as we enter the summer driving. The 321 crack spread is calculated by subtracting the price of 3 barrels of oil from the price of 2 barrels of gasoline and 1 barrel of distillate. Additional ratios used for multipleproduct crack spreads include 532 and 211. Gasoline crack spreads in the US. Crack spreads higher due to low oil prices, rising gasoline demand. Brent crude oil spot price averaged 1. View the latest oil gas industry statistics including oil prices, rig counts, production report oil imports. Accounting-For-Crack-Spread-Differences-Figure2.jpg' alt='Oil Price Crack Spread' title='Oil Price Crack Spread' />OReilly Do you ever see them take it out of the sand thing Its a big deal. Muckerman Yeah, its no joke. Perl How To Write To File more. Fall off the bone, you have the orange slices all over it, oh, jeez. OReilly Ive seen it once, and yeah, everything fell off the bone immediately. Anyway, moving on to more pleasant things, todays show, were discussing oil prices and how theyve been affected by inventories, because we get a news story every day, I guess. Muckerman Yeah, higher inventories in the U. S. , higher inventories with OPEC, although they seem to have some slowing or maybe negative growth in their inventories lately. OReilly At least, especially offshore. Muckerman The last few months, yes. Surprising inventory growth on the oil front. Gran Turismo 3 For Pc Full. OReilly And I just have to talk about, the last 2. Energy Partners. Muckerman Yeah, I think you brought that to our attention a few months ago. OReilly We have to rap about that, because last night was fun. And we dont talk about them enough, but were going to touch on deepwater offshore drillers before we head out. Muckerman Yeah, they have not had a good time of it lately. Weve just left them to die. OReilly We need them to be there, because in Armageddon, those were the guys they went to to help them drill into the asteroid to blow it up. So we need to keep these people doing what theyre doing. Muckerman Not all of them, apparently. OReilly We just need Ben Affleck. Muckerman Yeah, we need Ben Affleck and National Oilwell Varco, and maybe another driller or two. OReilly So, last couple shows, we chatted about oil price and inventories. Despite the drop in shale production over the past few years here domestically and OPECs cuts or whatever, Cushing inventories are still high. And every week, you get a couple little builds in there, and its like, whats going on here However, as was first touched upon by Tyler Crowe a month or so ago, when I had him call in from Malawi, this week, we have a string of articles from places like Bloomberg that U. S. traders might be focusing on the wrong data. More specifically, theres a Bloomberg article, Oil Traders Are Looking at the Wrong Inventory Data, and it was written by Jason Schenker. Hes the president and founder of Prestige Economics LLC, and he talks about product inventories like gasoline. For the layman, this is, plus oil, is used for plastic. Muckerman Generally, I would say most everything you touch throughout the day, your Tupperware, your car tires, some of your clothes, the soles on your shoes, yeah. OReilly What do you know about my no, Im kidding. He also in the article talks about something called the crack spread, which I hope you can add some light on. We havent mentioned this much on the show, but what is a crack spread, Taylor Muckerman Its getting down into the nitty gritty. Its really important for people who are looking at refiners. Basically, to make it as simple as I can make it, its the margin that refiners are going to make from the cost of a barrel of crude oil to the cost that it takes to produce oil. OReilly Why does that vacillate Im surprised that it changes, quite frankly. Muckerman The price of oil, obviously, fluctuates. When its 1. So they elevated the price of gasoline. Youre basically trying to take the barrel of oil equivalent of gasoline, have that price set, and then have the price that they paid for that oil, subtract it so that you get the margin. Hopefully for the refiners, the cost that theyre selling a barrel equivalent of oil or gasoline or refined product is higher than theyre paying for a barrel of oil. And they call it the crack spread because youre basically cracking oil up, the individual hydrocarbons into their end uses as refined products. OReilly Why does this exist I remember when oil prices were literally plummeting in late 2. OK OK being a relative term, compared to a straight up producer because the crack spread was widening. Is that because oil prices, their base commodity that theyre cracking into is it falling faster than the end products theyre sellingMuckerman Yeah, I feel like if youve ever looked at oil prices rising and falling, its kind of a lag before gasoline prices follow suit. OReilly Is that the cause of the crack spread Muckerman The cause of the crack spread is the vacillation of prices at different times. Theres a history there where you see the crack spread, in 2. Gulf conventional gasoline crack spread. But earlier on in February 2. I think its less important for long term investors because its cyclical, and it does change over time. But obviously, if youre looking for short term investment in a refiner, youre going to want to know what the crack spread is, what the projections are. OReilly He basically says that crack spreads are on the rise, at their highest levels since early, a year ago, 2. He basically implies that thats an incentive for refiners to go grab all the oil thats in inventory and make it into stuff. Muckerman You would imagine so, because you never know when prices are going to rise. If you listen to a few recent projections from investment bankers, BNP Paribas said they could see 7. OReilly Thatd be fun. Muckerman Another bank that escapes me said 6. Its these spikes that catch the refiners off guard. If you have sustained pricing, then they can plan a little bit better for it. But its this uncertainty. OReilly And thats when the crack spread drops, I assume Muckerman You become more profitable if you can sustain low oil prices, and then you can push out lowering gasoline prices. Eventually, though, your customers are going to be like, Well, youre getting your input costs a little cheaper, so how about you hook us up with a little bit of that margin youve been benefiting from But we should mention, end product inventories are down, so refiners could be buyers in the short term, especially with the summer driving season coming up. OReilly Which is basically what he was talking about. Muckerman Yeah. Its just the less heralded inventory levels, because oil is the base cost, thats what gets it all started, so thats the headliner. OReilly Of course, at the end of the day, just focus on good companies. Muckerman Yeah, you can also focus on, if you look at where the refineries are getting their oil from. A lot of mid con refiners here right along the Cushing area and the Gulf Coast generally getting some cheaper oil, and the lighter sweet crude oil, which is easier and less costly to refine. Crude Oil Futures Quotes CME Group. Welcome to WTI Crude Oil Futures. 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