The Most Profitable Business on Earth Today

 The Most Profitable Business on Earth Today!

If you are thinking it’s lithium mining, then you are wrong. It’s the oil refining business that is minting a crazy amount of profits today! Let us understand!

What are 3-2-1 crack spreads?

The crude oil is refined into different products like gasoline, fuel oil, diesel, etc. by the refining companies. It’s these end products that we use in our daily lives.

To evaluate the profitability of the refining business, analysts calculate 3-2-1 crack spreads. These are calculated as:

1) Buying 3 barrels of crude oil
2) Selling 2 barrels of gasoline
3) Selling 1 barrel of fuel oil

The higher the spreads, the more profitable the refining business.

What has happened to the 3-2-1 crack spreads?

Lately, the 3-2-1 crack spreads have skyrocketed to all-time high levels of $55-60 even though the crude oil has been in a tight range of $100-$120.

What are the reasons for the rising spread?

Market participants say that multiple shutdowns of refineries due to maintenance have led to this astronomical increase. 

Having said that, the structural reason is the underinvestment in the refining space that has resulted in this rise. The covid -ve oil prices resulted in many refineries getting shut; these are still not online and with the sudden surge in demand post covid, there is not enough capacity to meet the demand!

Conclusion!

The 3-2-1 crack spreads have risen to crazy levels. If we see the historical average then at $60 spreads, the crude oil price should be $250. The market is very tight, however, it is unlikely that spreads might increase from here on unless the crude oil rallies to $150!

Wise investing

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