What does a refinery actually buy and sell?
A refinery is often described as an oil company. Economically it is closer to a converter: it buys one commodity, applies heat and pressure, and sells several others. It is therefore not really long oil at all. It is long the gap between what crude costs and what fuel sells for — and that gap has its own name, its own quote, and its own seasonality.
One barrel in, several products out
A barrel is 42 US gallons. A typical US refinery turns each barrel of crude roughly into:
- 19–20 gallons of gasoline
- 11–12 gallons of distillate (diesel and heating oil — chemically similar products)
- a few gallons of jet fuel
- and the remainder as petrochemical feedstocks, asphalt, lubricants and refinery fuel.
The exact split is a choice within limits: the plant's configuration and the season determine how far it can lean toward gasoline or toward distillate.
The 3-2-1 crack spread
Because gasoline and distillate dominate the output, the industry uses a shorthand called the 3-2-1 crack spread: three barrels of crude in, two barrels of gasoline and one barrel of distillate out. It is not a real recipe. It is a standard proxy that lets everyone quote refining margin on the same basis.
The arithmetic, with one wrinkle: crude is quoted in dollars per barrel, products in dollars per gallon. Multiply products by 42.
Take gasoline at $2.40 a gallon, ultra-low-sulphur diesel at $2.60 a gallon, crude at $75 a barrel:
- Gasoline: 2.40 × 42 = $100.80 a barrel
- Distillate: 2.60 × 42 = $109.20 a barrel
- Revenue on three barrels: (2 × 100.80) + 109.20 = $310.80
- Crude cost on three barrels: 3 × 75 = $225.00
- Gross crack: 310.80 − 225.00 = $85.80, divided by 3 = $28.60 a barrel
That $28.60 is the gross margin per barrel processed, before the refinery's own energy, labour and maintenance costs — which are themselves substantial, and which rise when natural gas is expensive because a refinery is a large gas consumer.
The self-correcting loop
The crack spread is one of the more elegant feedback mechanisms in commodities:
- Wide crack → refining is profitable → refiners raise utilisation, delay maintenance, run flat out → more crude bought (supporting crude), more product made (weighing on products) → the crack narrows.
- Collapsed crack → refining loses money → refiners cut runs, bring maintenance forward, idle units → less product made → product supply tightens → the crack widens.
The lag is weeks, not days, because a refinery cannot be switched on and off. But the loop is reliable enough that a persistent, extreme crack in either direction is usually a statement about refining capacity, not about oil.
Why you see it at the pump
Motorists reasonably assume the pump price tracks the oil price. It tracks crude plus the crack plus taxes plus distribution, and the crack has its own life. Refinery outages, a hurricane on the US Gulf Coast, or a spring maintenance season can lift pump prices while crude sits still — or hold them up after crude has fallen. If you can decompose a pump price into those parts, most fuel-price commentary becomes easy to evaluate.
Seasonality, and yet more grades
Gasoline cracks are typically firmest heading into the northern-hemisphere summer driving season; distillate cracks firmest heading into winter heating demand. Refiners schedule turnarounds in the shoulder seasons — spring and autumn — precisely to be running when margins are best.
And gasoline, like crude, is not one product. Summer-grade blends have lower volatility than winter grades, octane specifications differ, and regional rules mean a fuel that is legal in one state may not be sold in another. Unit 1's rule holds all the way down the chain: grade, place and date.
In the data
The two legs of a crack spread arrive as two bare numbers. Below are the latest crude and gasoline futures prices, quoted together.
On 29 September 2026 they read 92.74 and 3.1545, and nothing beside either says that one is dollars per barrel and the other dollars per gallon. The 42-gallon conversion is yours to supply: 3.1545 × 42 = $132.49 of gasoline per barrel, a one-product crack of about $39.75. Subtract the two numbers as they arrive and you get something that is not a crack spread at all.
Try it now
- Both legs of the spread are below: crude in dollars per barrel, gasoline in dollars per gallon. Neither chart says so, which is the trap. Read a close off each on the same date, multiply the gasoline figure by 42 before you subtract, and what is left is a one-product crack in dollars per barrel.
- Do it again at three dates — one early in the window, one in mid-summer, one late. Use Measure on each chart to check that you read the two ends the same way. The crack you compute has a shape of its own that neither line shows alone, and that shape is the refinery's margin rather than anybody's oil price view.
- Recompute the 3-2-1 example with gasoline at $2.10 and distillate at $3.00, crude unchanged at $75. (Revenue = 176.40 + 126.00 = $302.40; crack = 77.40 ÷ 3 = $25.80.) Notice that a refinery configured for distillate and one configured for gasoline are having completely different years.