Light-heavy differential

The light-heavy product price differential is a measure of the difference in price between light products (e.g., gasoline and diesel) and heavy fuel oil.

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.

The Refinery Reference Desk includes content derived from our industry experts as well as from public data sources such as company websites. Nothing herein is intended to serve as investment advice. This material is based on information that we believe to be reliable and adequately comprehensive, but we do not represent that such information is in all respects accurate or complete. McKinsey Energy Insights does not accept any liability for any losses resulting from use of the content.



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