Question: Refiners can often manage their price risk on processing by entering a crack spread, which effectively locks in the refiners 'profit by agreeing selling price

Refiners can often manage their price risk on processing by entering a crack spread, which effectively "locks in" the refiners 'profit by agreeing selling price for the product they produce in advance and netting off the cost of crude oil required to produce those products. construct a crack spread trade for an american refiner using a 5-3-2 crack spread, with the following

Date WTI futures($/bbl) Gasoline($/US Gallon) Heating Oil ($/US Gallon)

Sep 56.27 1.5025 1.6078

Oct 55.52 1.4959 1.6225

Nov 55.70 1.4793 1.6456

Dec 56.80 1.4687 1.6649

Jan 56.80 1.4558 1.6559

Feb 57.44 1.4631 1.5382

sketch the crack spread graph and clearly justify what the likely market conditions behind the shape of the curve .

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