The 3-2-1 crack spread may best be characterized as having broad, sweeping moves in the intermediate term. Once the spread peaks from supply disruption, typically it has reverted back to a more normal level of 10-15 as refiners ramp up to capacity to profit from juicy margins. After reaching a new low of 23.34 in mid June, flooding on the Mississippi River further reduced refining capactity, causing the crack spread to rise to its current level of 30. It is also likely that geopolitical risk in the Middle East has amplified prices.
When the crack spread spikes to level above 30, refiners are motivated to increase capacity.
From the EIA:
Demand is strong, but not extrodinary, and slightly below 2009-2010 levels.
The supply disruption is clearly seen as we edge to the lower band of Gasoline Stocks average range while days supply of Gasoline remains marginally below 2009-2010 levels.
Now here is the invisible hand at work:
At the same time, domestic refiners seem to be ramping up production in order to cash in on the very high margins.
Gasoline futures tend to peak in mid-June. This is presently providing an upward bias to the crack spread.
However, in the coming weeks, the confluence of seaonality, production, inventory, demand and profitability may suggest that the crack spread has a lot more downside than upside.