Diesel Crack Spread: ULSD Versus Crude Oil

Define the benchmark

In a common US futures comparison, the diesel crack uses NY Harbor ULSD and WTI crude. Specify both benchmarks and delivery months. A different regional diesel assessment or crude grade represents a different relationship and should not be silently substituted.

The simple 1:1 calculation, with ULSD in dollars per gallon and crude in dollars per barrel, is ULSD × 42 − crude.

A hypothetical calculation

At ULSD $2.40/gallon and WTI $75/barrel, the converted product value is $100.80/barrel. The difference is $25.80/barrel. If ULSD rises to $2.45 while WTI rises to $77, the new difference is $25.90: only $0.10 wider despite increases in both prices.

This example demonstrates relative movement. A view that diesel prices will rise is not sufficient to establish that the diesel crack will widen; the crude leg may rise faster after conversion.

Read each leg

When reviewing a sharp change, compare product and crude returns over the same interval. Check whether contract rolls or differing timestamps explain part of the movement. Then examine relevant inventory and refinery information to develop, rather than assume, an explanation.

For a seasonal study, maintain the same month rule across years. A continuous nearest-contract series may introduce roll changes unrelated to the relationship you want to study.

Keep three measures separate

The current crack level, the change in that level and actual trading P&L are different measures. P&L depends on direction, sizing and execution. The crack level also excludes the full cost structure of physical refining.

Use the same unit checks for every data source. A feed in cents per gallon and a feed in dollars per gallon differ by a factor of 100 before the barrel conversion.

Continue your research