VanEck's CRAK Tracks Oil Refiners' Margins

The ETF's price typically follows seasonal patterns that reflect the demand for gasoline.

The VanEck Oil Refiners ETF (CRAK) owns shares in the leading oil refining companies. Appropriately named, CRAK reflects the prices of companies whose shares move higher and lower with crack spreads. 

A crack spread measures the refining margin for processing a barrel of crude oil into oil products. Gasoline and distillate crack spreads are real-time indicators for crude oil demand, but they are also earnings barometers for the companies that refine petroleum into oil products.  

Crude Oil Prices Moving Higher 

After trading to a $95.03 per barrel high on Sept. 28, the highest level since August 2022, Nymex WTI, or West Texas Intermediate, crude oil prices turned lower, dropping more than 14% below $82 per barrel in early October. Nearby Brent crude oil futures fell over 14.5% from $97.67 to $83.45 per barrel.  

Crude oil dropped as long-term U.S. interest rates soared to the highest level since 2007. Moreover, weak Chinese energy demand has weighed on the oil market over the past sessions.  

During the first week of October, crude oil gave up nearly half the third-quarter gains.  

Gasoline Processing Margins Fall 

WTI crude oil is a light, sweet crude oil with a lower sulfur content, making it the preferable crude oil for gasoline refining. The gasoline processing spread declined from $24.29 per barrel on Sept. 12, when crude oil was still rallying, to $7.70 per barrel on Oct. 5, the lowest level since December 2020. The drop in the gasoline crack spread signaled that crude oil prices were heading lower. Moreover, the decline marked evaporating profit margins for refineries processing petroleum into gasoline.  

Seasonal Factors 

While Brent crude oil is also a light, sweet crude oil, it has a slightly higher sulfur content, making it the preferred petroleum for distillate fuel processing. Heating oil is a proxy for other distillates, including jet and diesel fuels. Therefore, the heating oil crack spread reflects refinery distillate earnings and the demand for crude oil. 

Gasoline crack spreads fell as the 2023 driving season ended. The peak driving season runs from the spring through the summer. Distillates are more year-round fuel markets without the same seasonal trends. However, November heating oil crack spreads dropped from $53.82 on Sept. 14 to $36.80 on Oct. 6, signaling weakening overall crude oil demand and refinery margins.  

CRAK, the oil refinery ETF, reached a $36.01 per share high on June 6, 2023, and a slightly lower $35.89 peak on Sept. 11. As crack spreads and oil prices headed lower in early October, CRAK fell below the $32.50 level on Oct. 4 and 5.  

CRAK Tracks Refiners’ Index 

The components of the MVIs Global Oil Refiners Index include: 

Source: marketvector.com

The chart highlights the worldwide oil refining companies that comprise the index and CRAK.  

Falling crack spreads weighed on CRAK in early October.  

A Small ETF 

At $32.57 per share, CRAK had $30.78 million in assets under management, making it a small ETF.

CRAK’s daily average volume is below 14,000 shares. and charges a 0.61% expense ratio.  

Source: etf.com

The chart shows CRAK’s mostly bullish trend since 2020, with the latest correction in early October.

Source: etf.com
Since late June, the etf.com Fund Flows Tool highlights a $3.33 million or over 10% outflow. The selling was likely profit-taking after the steady bullish trend over the past years.  

Seasonality and an overall correction in crude oil prices could send CRAK lower over the coming weeks. If the selling continues, the best chance for a rebound could come in late winter when the crude oil products market begins gearing up for the 2024 driving season when gasoline demand increases.