One of the most important factors affecting the crack spread is the relative proportion of various petroleum products produced by a refinery.
To some degree, the proportion of each product produced can be varied in order to suit the demands of the local market.
Heavier crude oils contain a higher proportion of heavy hydrocarbons composed of longer carbon chains.
Given a target optimal product mix, an independent oil refiner can attempt to hedge itself against adverse price movements by buying oil futures and selling futures for its primary refined products according to the proportions of its optimal mix.
[citation needed] Various financial intermediaries in the commodity markets have tailored their products to facilitate trading crack spreads.
The following discussion of crack spread contracts comes from the Energy Information Administration publication Derivatives and Risk Management in the Petroleum, Natural Gas, and Electricity Industries:[3] Refiners’ profits are tied directly to the spread, or difference, between the price of crude oil and the prices of refined products.
NYMEX treats crack spread purchases or sales of multiple futures as a single trade for the purposes of establishing margin requirements.
An average 3-2-1 ratio based on sweet crude is not appropriate for all refiners, however, and the OTC market provides contracts that better reflect the situation of individual refineries.