The 6-month futures price for oil is $21 per barrel (or 50 cents per gallon). The 6-month futures prices for gasoline and heating oil are 80 cents and 69 cents, respectively. What is the gross margin on a simple 3-2-1 crack spread?

Question

Quizplus · Accepted Answer

The 3-2-1 crack spread involves buying 3 barrels of crude oil and selling 2 barrels of gasoline and 1 barrel of heating oil. The cost for 3 barrels of oil is 3 x $21 = $63. The revenue from selling 2 barrels of gasoline is 2 x $0.80 x 42 = $67.20 (since there are 42 gallons in a barrel), and from 1 barrel of heating oil is 1 x $0.69 x 42 = $28.98. The total revenue is $67.20 + $28.98 = $96.18. The gross margin is $96.18 - $63 = $33.18, and per barrel, it is $33.18 / 3 = $11.06. Converting to per gallon, $11.06 / 42 = $0.2633. The correct answer is $0.79 per gallon, which is the gross margin per gallon of oil processed.

The 6-Month Futures Price for Oil Is $21 Per Barrel