Yahoo Finance US Gulf Coast 3:2:1 Crack Spread Rose 25% Last Week
September 25 Week: Crude Oil, Refined Products Prices Had a Good Run
US Gulf Coast 3:2:1 crack spread
The benchmark US Gulf Coast 3:2:1 crack spread rose ~25% last week. It hit $13.115 per barrel on Friday, September 25. On Friday, September 18, the spread was $10.488 per barrel.
For context, the US Gulf Coast crack spread peaked at ~$26 on August 12. The lowest crack spread levels this year reached ~$3.50 early in January.
The above graph 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 from which these products are assumed to be produced.
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). They can purchase raw materials or inputs at a lower cost.
Conversely, narrower crack spreads decrease profit margins for refiners. Together, these companies account for ~12% of the Energy Select Sector SPDR ETF (XLE).
These companies spun off some of their midstream assets to form Valero Energy Partners (VLP), Phillips 66 Partners (PSXP), MPLX (MPLX), and Tesoro Logistics (TLLP). These are all midstream MLPs.
A wider crack spread would indirectly benefit these companies. Higher volumes produced by their refining parents would mean more volume to transport. This would boost the MLPs’ revenues. For more on crack spreads, please read Crack Spread 101.
For the latest updates on the energy sector, please visit Market Realist’s Energy and Power page.
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