The crack spread measures the price difference between crude oil and its refined products, primarily gasoline and heating oil. This spread represents the gross refining margin and indicates the profitability of oil refining operations. The most common crack spread ratios are 3:2:1 (three barrels of crude oil producing two barrels of gasoline and one barrel of heating oil).

Crack spreads are actively traded as futures spreads, allowing refiners to hedge their margins and speculators to trade refining sector profitability. Factors affecting crack spreads include seasonal demand patterns, refinery capacity utilization, environmental regulations, and regional supply-demand imbalances. Wide crack spreads indicate strong refining margins, while narrow spreads suggest poor profitability.

Real-world example: A refiner sells crude oil futures and buys gasoline and heating oil futures to lock in a $15 per barrel crack spread, protecting profit margins regardless of absolute price movements.