Question

Refiners can often manage their price risk on processing by entering a crack spread, which effectively "locks in" the refiners 'profit by agreeing selling price for the product they produce in advance and netting off the cost of crude oil required to produce those products. construct a crack spread trade for an american refiner using a 5-3-2 crack spread, with the following

Date    WTI futures($/bbl)      Gasoline($/US Gallon) Heating Oil ($/US Gallon)

Sep       56.27                            1.5025                                1.6078

Oct        55.52                            1.4959                                 1.6225

Nov       55.70                             1.4793                                  1.6456

Dec        56.80                            1.4687                                 1.6649

Jan          56.80                           1.4558                               1.6559

Feb         57.44                           1.4631                                1.5382

sketch the crack spread graph and clearly justify what the likely market conditions behind the shape of the curve .

Answer 1

Date	WTI futures($/bbl)	Gasoline($/US Gallon)	Heating Oil ($/US Gallon)
Sep	65,270	1,503	1,608	-1,9798
Oct	55,520	1,496	1,623	47,1734
Nov	55,700	1,479	1,646	46,1222
Dec	56,800	1,469	1,665	41
Jan	56,800	1,456	1,656	39
Feb	57,440	1,463	1,538	26,3594

For several months it has declined, due to the high demand of the oil markets to generate a bias in the economies dependent on this, on the other hand the price of gasoline and oil have remained relatively stable this due to the country's internal policies , which gives the processors a great advantage of maintaining a stable price with respect to market variations, likewise the protectionist action of the states for the option of taxes through the latter two provides a tariff and price balance