Gas Prices Are TANKING, Here's What That Means for the Economy

Wholesale gasoline prices plunged in August to their lowest since the start of the year. This sounds like a positive, both for consumers as well as Fed policymakers and the disinflationary impact on consumer prices. But refinery margins have crashed to their lowest in three and a half years which instead points to more and bigger trouble.

Eurodollar University's Money & Macro Analysis

CRACK SPREAD
Crack spread is a term used on the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it. The spread approximates the profit margin that an oil refinery can expect to make by "cracking" the long-chain hydrocarbons of crude oil into useful shorter-chain petroleum products.

KEY TAKEAWAYS
* A crack spread is the overall pricing difference between a barrel of crude oil and the petroleum products refined from it.
* The price of a barrel of crude oil and the prices of the different products derived from it are not always in sync, leading to the spread in prices.
* The difference in prices is important to oil refiners as it can impact their profit margins.
* To mitigate the pricing risk, refiners use futures to hedge the crack spread. Futures and options can also be used by traders to hedge other investments or speculate in the oil market.
* Crack spreads can be used as a market signal for price movements in oil and refined products depending on whether the spread is tightening or widening.

Source: https://www.youtube.com/watch?v=PsINQg0giho