The light-heavy differential is a key measure of refinery market conditions. Refiners generally have higher profitability when the light-heavy differential is wide (i.e., has a high value) because they get higher value for the refined products that they primarily produce (i.e., gasoline and diesel) and have lower costs for any medium and heavy crude oil that they process.
Measures of the light-heavy differential
There are a number of possible measures of the light-heavy differential, but the most common is the difference between light and heavy products, calculated as:
50% gasoline price + 50% diesel price - High sulfur fuel oil price
The light-heavy differential is also sometimes measured as the spread between a light and heavy crude oil, for example: Brent -Dubai. This correlates strongly with the product light-heavy measure, but it is a less exact measure as it is also affected by the differences in sulfur content and and product yield of the two crudes beyond just light and heavy.