CVR Refining (CVRR) had a correlation of 0.28 with the Gulf Coast 3-2-1 crack spread over the last one-year period. This is high compared to a correlation of 0.16 for both Alon USA Partners (ALDW) and Northern Tier Energy (NTI) over the same timeframe. This likely indicates that a recovery in crack spreads will benefit CVR Refining more than its peers. Investors should note that crack spreads vary according to region due to the regional differences in the prices of crude oil and refined products.
Outlook for CVRR
The above graph shows movements in CVRR’s stock price, WTI, and the Gulf Coast 3-2-1 crack spread since the start of 2013. Refining MLPs will most likely not enjoy the high crack spreads that these witnessed in 2015. The year-to-date average Gulf Coast 3-2-1 crack spread is $10.0 compared to an average of $15.0 per barrel in 2015.
Moreover, according to a weekly report from the EIA (U.S. Energy Information Administration), higher gasoline inventory levels are likely moderating price increases that are typically observed during the start of the summer driving season. In the longer term, additions to global refining capacity are also expected to affect refiners negatively.
The expected negative distribution growths for CVR Refining, Alon USA Partners (ALDW), Northern Tier Energy (NTI), and Calumet Specialty Products Partners (CLMT) as well as the lack of “buy” recommendations for ALDW, NTI, and CLMT from analysts are indicative of the headwinds that refining MLPs could face in the near future.
On the positive side, stable gasoline and distillate demand growth should support refining margins in the longer term.