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The crack spread is the spread or differential between the price of crude oil and the price of the oil products refined from it. The word crack is a reference to a method of refining crude into oil products. Complex hydrocarbon molecules are cracked or broken down into simpler, higher value hydrocarbons. The crack spread is traded on futures markets by the simultaneous sale and purchase of crude oil and oil products contracts, normally gasoline and heating oil. Oil companies trade the crack spread to hedge their refining risk while investors may see opportunities to profit from any widening or narrowing of the spread.
See also:Hedging, Refining Margin