may also want to use it as a hedge against a refining company's equity value, or even take a directional position with it for your energy portfolio. Each tick of /CL represents. CL Tick Size, the tick size represents the minimum dollar amount the price of the contract will move up or down.
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Of course, it is a bit of an oversimplification of the refining process as one barrel of oil doesn't make exactly one barrel of gasoline and, again, their are different product mixes depending on the refinery. According to the CME's website, in a typical refinery, gasoline output is double that of distillate fuel oil (the cut of the barrel that contains diesel, heating oil, and jet fuel). We can also set up diversified crack spread trades using a ratio of crude oil, gasoline, and heating oil contracts. The crack spread represents a profit margin. Now that we have an understanding of whats represented by each of these futures contracts, lets take a look at the spread on a 1:1 basis, either 1 /RB (unleaded gasoline) or 1 /HO (heating oil) contract to 1 /CL contract. One of the main determinants of crude prices is an inverse relationship between crude and currency strength. The price of a barrel of crude oil and the various prices of the products refined from it are not always in perfect synchronization. Futures and options traders can also use the crack spread to hedge other investments or speculate on potential price changes in oil and refined petroleum products. While not everyone is interested in the energy markets, I figured I'd do a few pieces of some of the rudimentary energy lingo so you can impress your friends down in Houston. The Crack Spread is the spread between the price of crude oil and the petroleum products that are refined from the crude oil. By looking at the current spread from our example, the crack spread is.16 (which is relatively high on a historical basis and understanding current market fundamentals from a supply and demand standpoint, we may decide to place a trade that profits when this.
Crack Spread Trading What You Need To Know About Crack
Crack Spread - Investopedia