Crack Spreads Just Hit New Highs

For the last few weeks, I’ve heard the same argument over and over again: the energy trade is over.

Maybe. But that’s not what the data is telling us.

Let’s start with the first chart.

The year to date performance chart tells you where money is actually flowing, not where people think it should be flowing. Heating oil is up more than 160% this year. Gasoline is pushing 80%. Crude oil is up nearly 60%. Natural gas, soybean oil, and agricultural commodities are sitting near the top of the leaderboard. Even with this pull back. 

This isn’t defensive positioning. This is capital aggressively rotating into energy related assets.

Now move to the second chart. 

The 3:2:1 crack spread has just broken out to a new high.

For anyone unfamiliar, the crack spread measures the profitability of turning crude oil into refined products like gasoline and diesel. When crack spreads expand, refiners make more money. Historically, that’s been an incredibly important leading indicator for portions of the energy sector.

Notice where we are today. The spread isn’t simply elevated, it has reached one of the highest levels we’ve seen in decades. That tells us demand for refined products remains extremely strong relative to crude input costs.

Markets rarely move in isolation. When refiners begin earning significantly higher margins, those profits eventually work their way through the entire value chain. Exploration companies, oil services, infrastructure, pipelines, and refiners themselves often begin attracting capital as investors recognize improving fundamentals.

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