Cracking

DEFINITION of 'Cracking'

Used in the oil and gas industry to refer to a variety of methods whereby a larger product is broken down into smaller by-products. For example, crude oil can be processed (cracked) to produce "lighter" byproducts such as liquefied petroleum gas (LPG) or gasoline. When looking at investments in the oil industry, many investors will look at the crack spread, or the profit from "cracking" crude oil.

BREAKING DOWN 'Cracking'

Cracking splits larger molecules into smaller ones, or breaks the bonds of a larger, more complex material into smaller matter. Cracking can be accomplished in a variety of methods, including hydrocracking, fluid catalytic cracking and steam cracking.

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