Last year, oil prices went crazy. In a matter of weeks, oil shot up as high as $147 and came right back down. Today, oil is sneaking back up. The obvious temptation is to try and time it again.

The smart money, however, is looking elsewhere to take advantage. We found the perfect penny play to do just that…

Instead of outright betting on oil’s price, let’s use the spread between oil and gas. After all, some of the largest companies in the world do this. All the large oil companies (ExxonMobil, BP, Shell, etc.) do it by owning refineries.

Now, to be fair, most of their profits don’t come from the refinery process. But big money is still out there for the taking. Just take a look at industry leader Valero. Last year, while it may not have been a normal environment for a energy related business, Valero brought in $119 billion in revenue.

Unfortunately, most of the money disappeared because, as a refiner, the company had to purchase the oil to process. Oil hit $147 last year, which certainly put a dent in Valero’s bottom line.

So, the question if oil is rising again, will gas and heating oil follow? And if so, by how much?

The most important figure in the refinery business is something called the crack spread. Using a West Texas Intermediate (WTI) crude refining model, the ratio is three barrels of crude (cost), two barrels of gasoline (gain), and one barrel of heating oil. That’s written like this: 3-2-1. If you are using OPEC grades, which produce less gasoline, the ratio is 2-1-1.

Until you see where it’s been and where it’s going, all this info is useless. Here’s a frame of reference:

Cracking the Crack Spread

As you can see, it’s been all over the board the last few years. It even went negative at one point last year, which means the refinery loses money on every single barrel of crude it processes.

We expect, over time, that this spread will stay above $7, probably even north of $10 or $12. This is not an exact science.