Could someone check my logic? - this gives us the “locked-in” gross margin by going long futures, if 5 gallons of crude go into 3 gallons of gasoline & 2 gallons of heating oil - say that crude July futures are $80/bbl, July gasoline’s $2.25/gallon & July heating oil’s $2.00/gallon… calculate the locked-in spread by going long all 3: 3 * (2.25) + 2* (2.00) - 5*($80/42) = $1.2262 $1.2262/3 = $0.4087/gallon… this is the locked-in spread by going long the futures ??
why did you divide by 3 in the end? It should be divided by 5 IMO.
Divide it by total barrels = 5
hmm, I don’t see why you divide at all since you already show everything in gallons. I think of it as you are purchasing 5 gallons of oil at $1.905 /gallon ($9.525 total) and then you magically crack it, then sell 3 gallons gas for $2.25 each ($6.75) and 2 gallons heating for $2.00 ($4 total) so you puchase at $9.525 total for every 5 gallons, then lock in a sell price at $10.75, spread is $1.225 per 5 gallon.
Oh right, LGF. “Spead is 1.225 per 5 gallons” would mean to divide by 5. LOL. Strike my first sentence in my above post from the record!
Got it. Thanks everyone. My 3 was a typo.