Colum

bpdulog Wrote:
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> Why couldn't you? Depends on what your
> expectations are. Are the inputs relative the
> outputs expensive or cheap?

The idea of the crush spread is you buy the inputs and sell the outputs as you lock in your prices as a refiner or someone who makes soy bean oil.

I am a crude refiner who buys crude all day. I make heating oil and gasoline. I buy t1 oil and sell t2 heating oil and gasoline. Thus locking in today's prices.

I completely understand selling heating oil and gasoline naked as I can deliver both of those. I don't produce crude so how can I deliver on my crude contracts and I can't convert my heating oil back crude either. Seems like it is not a hedged position.

"For integrated oil companies that control their entire supply chain from oil production to retail distribution of refined products, there is a natural economic hedge against adverse price movements. For independent oil refiners which purchase crude oil and sell refined products in the wholesale market, adverse price movements can present a significant economic risk. Given a target optimal product mix, an independent oil refiner can attempt to hedge itself against adverse price movements by buying oil futures and selling futures for its primary refined products according to the proportions of its optimal mix."

I just don't get how you can sell oil and buy the outputs and that somehow works.