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.

RELATED TERMS
  1. Crack

    A trading strategy used in energy futures to establish a refining ...
  2. Crack Spread

    The spread created in commodity markets by purchasing oil futures ...
  3. Downstream

    The oil and gas operations that take place after the production ...
  4. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  5. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the ...
  6. Oil Price to Natural Gas Ratio

    A mathematical ratio comparing the prices of crude oil and natural ...
Related Articles
  1. Investing

    Why Low Oil Prices Don't Always Mean Low Gas Prices

    Find out why gasoline prices do not always decline with oil prices. Learn about the impact of the refining process, taxes and marketing, and distribution.
  2. Investing

    5 Reasons Why Private Equity Investors Like Oil and Gas Companies

    Oil and gas companies may look like a risky industry on the outside, but private equity investors have found reasons to regularly invest in these firms.
  3. Investing

    What is Crude Oil?

    Crude oil is a natural petroleum product that’s composed of organic materials, including hydrocarbon deposits.
  4. Investing

    Do Oil and Natural Gas Prices Rise And Fall Together?

    Do the prices of crude oil and natural gas affect each other? Investopedia explores price patterns and provides analysis.
  5. Investing

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  6. Investing

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  7. Investing

    Top 5 Oil and Gas Bond ETFs for 2016 (USO, OIL)

    Discover the top five oil and natural gas bond ETFs with the potential to come out on top in 2016 as the industry looks toward a future rebound.
  8. Investing

    The Reasons for the Mexican-U.S. Oil Swap

    The U.S. government is getting close to a historic deal to allow U.S. producers to swap the light, sweet crude oil that is in too much supply with Mexico, in return for heavy crude.
  9. Investing

    The 2016 Outlook For Oil Refiners

    Many refiners have benefited from wide crack spreads in recent years but profits may suffer when crude oil stabilizes.
  10. Investing

    Make a Downstream Bet with Oil Refiners

    Now is a good time to bet on the oil refinery sector. Here's why.
RELATED FAQS
  1. What is a heavy oil differential and how does it affect oil producers?

    Learn what the phrase "heavy oil differential" refers to and the significance of heavy oil differentials for oil production ... Read Answer >>
  2. What economic indicators do oil and gas investors need to watch?

    Leading indicators for oil and gas investments are centered around the levels of production, consumer demand and inventory ... Read Answer >>
  3. What economic indicators are important to consider when investing in the oil and ...

    Find out more about economic indicators and which ones are important when investing in companies in the oil and gas sector. Read Answer >>
  4. What impact has the increase in shale gas drilling had on the oil and gas industry?

    Read about some of the domestic and global impacts of the shale oil and gas revolution on the oil and gas industry, particularly ... Read Answer >>
  5. What are the main benchmarks that track the oil & gas drilling sector?

    Read about several different types of benchmarks that investors can use to track the overall performance of the oil and gas ... Read Answer >>
  6. What percentage of the global economy is comprised of the oil & gas drilling sector?

    Read about a rising industry that already composes as much as one-twentieth of total global economic output: the oil & gas ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center