Crack Spread

A crack spread is a processing spread trade where crude oil futures are bought (long) and gasoline and heating oil futures are sold (short) simultaneously. Oil refineries use this hedging strategy to hedge the later purchase price of crude oil and the later sale price of gasoline and heating oil (both crude oil distillates). The term crack refers to the process of refining crude oil into distillates like gasoline, heating oil, gasoil and diesel.