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Trading Crack

Refiner margins have rebounded.  Refiners buy crude oil and refine it into various products.   If one can sell those products for more than the price of a barrel of oil, a profit is to be had.  This is commonly referred to as the 3-2-1 crack spread.

That spread has blown up in the past few weeks, skyrocketing from roughly $12 to $20 in about one month. Morgan Stanley over President’s Day weekend highlighted the refiner margin strength and said the current benefits to refiners will push some performance weakness into the summer, helping to dampen the impact of the drop in Crude Oil prices on business performance.


There is no ETF to track 3-2-1 Crack, however if one wishes to attempt to replicate the performance of the indicator, these ETFs are worth a look.

US Diesel-Heating Fund (NYSE: UHN)
US Gasoline Fund (NYSE: UGA)
US Oil Fund (NYSE: USO)

To get “Long” on the crack spread one would short Oil and buy heating oil and gasoline.

  • Sell 3 Units of USO
  • Buy 2 Units of UGA
  • Buy 1 Unit of UHN

To get “Short” the crack spread one would buy Oil and sell heating oil and gasoline.

  • Buy 3 Units of USO
  • Sell 2 Units of UGA
  • Sell 1 Unit of UHN

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