MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What is commodity-product spread?

The commodity-product spread is the difference between the price of a commodity and the price of the products at the next level of consumption which is made from the commodity.

In the oil industry, this is known as the crack spread, in the soybean industry, it is known as the crush spread. Some pre-packaged long/short futures strategies that trade on this spread are offered on futures exchanges.

The commodity-products spread is the difference in prices between a raw material and a product made from it, such as raw crude and gasoline. This difference gives a rough estimate of production costs and profit margin.

Traders can buy and sell futures in a strategy with one leg on the price of the raw commodity and one or two legs on the price(s) of product(s) created from it, and these positions are sometimes sold as a package with one aggregate margin calculation.

In the oil industry, the spread for production/refining is known as the crack spread because the process of refining involves “cracking” the carbon chains in the crude oil. A 3-2-1 crack spread is a ratio spread that assumes 3 barrels of crude will produce 2 barrels of gasoline and 1 barrel of distillate fuel.

Using the prices of the those three to compute the average spread per barrel can serve as an index.

What is a Time Spread?
What is a Vertical Spread?

Ad is loading...