WTI up 8 cents at $47.74
RBOB up .0203 at $1.5339
And from Wolf Street:
When there is the opportunity and the time is right to make money, most people will jump at it. Understanding that simple bit of human psychology may be a key determinant of the probable future path of crude oil (WTI) pricing.
Refinery runs or the degree of operational capacity of refiners to produce product are a useful telltale. Right now, for example, refineries are running very close to capacity at a 94.1 percent utilization rate (source: EIA), appreciably up from the three months previous in 2017 and certainly well above an average capacity utilization rate of 89.9 percent during 2016.
The reason for this is the fact that it’s currently more profitable to “crack” oil into product these days as the “crack” is currently around $18-20 per barrel depending on the grade in question, and looks to be going higher.
The crack spread is a term used both in the oil industry as a tool for producers to hedge their P&L and for futures trading as speculators trade the crack and also hedge existing WTI futures positions. In simple terms, the crack spread measures the differential between the price of WTI or Brent and the products (gasoline and distillates) extracted from it.
Consequently, the spread approximates the profit margin an oil refinery can expect to earn by cracking crude oil, which in and of itself is of no use to anybody and in that sense has no value, into useful petroleum products such as heating oil and gasoline for daily consumption.
More specifically, in global futures markets, the crack spread is a specific spread trade involving simultaneously buying and selling contracts in crude oil and one or more derivative products, typically gasoline and heating oil. Oil refineries may trade the crack spread to hedge the price risk of their operations, while speculators attempt to profit from changes in the oil/gasoline price differential....MORE