The Energy complex Crack Spread generally will be in 3 ratios. The 2-1-1, the 3-2-1, and the 5-3-2. To calculate the gross cracking margin, one converts the products to dollars per barrel. The prices used for the examples are:
July WTI - CL = 91.15
July RB = 2.8317
July HO = 2.8343
So the 2-1-1 ratio crack margin would be:
Two barrels of Crude @ $91.15 = $182.30
HO = 2.8343 x 42 = $119.04
RB = 2.8317 x 42 = $118.93
The sum of the products Is: $237.97
Therefore the gross cracking margin is $237.97 - $182.30 = $55.67
2-1-1 Crack spread is $55.67 / 2 barrels = $27.83 per barrel.
The 3-2-1 ratio crack margin would be:
3 barrels of Crude @ $91.15 = $273.45
HO = 2.8343 x 42 = $119.04
RB = 2.8317 x 42 x 2 barrels = $237.86
The sum of the products Is: $356.90
Therefore the gross cracking margin is $356.90 - $273.45 = $83.45
3-2-1 Crack spread is $83.45 / 3 barrels = $27.81 per barrel.
The 5-3-2 ratio crack margin would be:
5 barrels of Crude @ $91.15 = $455.75
HO = 2.8343 x 42 x 2 = $238.08
RB = 2.8317 x 42 x 3 = $356.79
The sum of the products Is: $594.87
Therefore the gross cracking margin is $594.87 - $455.75 = $139.12
5-3-2 Crack spread is $139.12 / 5 barrels = $27.82 per barrel.
A vast majority of the time the difference between the cracking margin ratios is very small.
If the trader expects the crack margin to decline, they buy the crude and sell the products (Sell the Crack). Of if a rise is expected, sell the crude and buy the products (Buy the Crack).
Some traders feel the spread should be placed with a 1 month difference in the crude oil vs. the product months (i.e. July crude vs. Aug. Products). However in my analysis this makes very little difference. IMO the trader need not be so concerned with an attempt to match the exact positions used by the refiner to hedge their operation. Refiners may take futures positions based on other factors such as maintenance or temporary shutdown. Some feel the Brent should be used, this would be calculated the same.
The Crack Spread Handbook from the NYMEX/COMEX can be found at:
http://www.danielstrading.com/resou...-publications/nymex/crack-spread-handbook.pdf
Also, one can get history (charts and Prices in PDF) back to 1986 for all the crack spreads as well as almost all commodity spreads (free for now) at:
http://primetradersware.com
