Yahoo Finance US Gulf Coast 3:2:1 Crack Spread Was Up Last Week
September 11 Week Was Bad for Crude Oil and Refined Products
US Gulf Coast 3:2:1 crack spread
The benchmark US Gulf Coast 3:2:1 crack spread rose ~1.44% last week. It hit $11.087 per barrel on Friday, September 11. On Friday, September 4, the spread was $10.929 per barrel. For context, the US Gulf Coast crack spread peaked at ~$26 a few weeks earlier on August 12. The lowest crack spread levels this year reached ~$3.50 early in January.
The above chart illustrates the US Gulf Coast 3:2:1 crack spread over the last few days. The 3:2:1 crack spread reflects a theoretical calculation of the difference between the price of two barrels of gasoline and one barrel of distillate fuel and the cost of three barrels of crude oil that these products are assumed to be produced from.
Why watch crack spreads?
Crack spreads represent the price difference between refiners’ revenue, derived from the sale of finished refined products, and refiners’ costs or the price of crude oil (USO). So, they’re an important metric that drives refiner profitability and market valuation. This is something investors in refiner stocks should watch.
A wider crack spread increases the profit margins of refiners like Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Tesoro (TSO). It enables them to purchase raw materials or inputs at a lower rate and sell the refined products at higher prices. Conversely, narrower crack spreads reduce profit margins for refiners. Together, the companies mentioned above account for ~12% of the Energy Select Sector SPDR ETF (XLE).
The above companies spun some of their midstream assets to form MLPs like Valero Energy Partners (VLP), Phillips 66 Partners (PSXP), MPLX (MPLX), and Tesoro Logistics (TLLP). A higher crack spread would also indirectly benefit these companies. The higher volumes produced by their refining parents, if they choose to take advantage of these higher margins, would mean more volume to transport. This would boost the MLPs’ revenue. For more on crack spreads, please read Crack Spread 101.
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