Crack Spread

What is Crack Spread?

Author: Hassan Saab
Hassan Saab
Hassan Saab
Investment Banking | Corporate Finance

Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside M&A, restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a BS from the University of Pennsylvania in Economics.

Reviewed By: Rohan Arora
Rohan Arora
Rohan Arora
Investment Banking | Private Equity

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

Last Updated:April 12, 2022

Crack spread is a term used in oil futures trading and is derived from the chemical process of cracking (heating crude oil to certain temperatures to distill off different grades of fuel). A crack spread is a hedge created by going long in oil futures whilst shorting gasoline and heating oil futures.

Gasoline and heating oil are both created from cracking crude oil so their prices are related. Therefore, if the price of crude changes the prices of gasoline and heating oil will move in the same direction (although not necessarily by the same amount) so by being long one and short the other, the investor is hedged. The purpose of a crack spread is simply to hedge against changes in the future price of oil.

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