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Crack Spread

Sharhan Muhseen and Raja Senanayake

August 16, 2007 (LBO) – The Ceylon Petroleum Corporation which runs Sri Lanka's only refinery has hedged the crack margin of a portion of its diesel and kerosene output in a deal with the Standard Chartered Bank, an official said. CPC is also planning to expand its refinery capacity by going for an 800 million dollar expansion. The crack margin or crack spread is the difference between the price of crude oil and that of refined products.

The crack spread is influenced by the demand and the availability of refined product stocks or refining capacity at a global level. The margins change at different times of the year, especially when petrol demand is high during the northern hemisphere summer.

CPC says it has fixed the spread on 100,000 barrels of diesel and kerosene till December when spreads are expected to bottom out.

Basically what we have done is we have tried to protect the refinery’s margin, says Ceylon Petroleum corporation chairman Ashantha de Mel.

What happens is when the margins narrow between the crude and finished product we find that the refinery starts losing money so in order to prevent this we have taken a hedge.

The crack margin was 15.20 dollars a barrel for diesel and 18.

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