How do crack spreads impact refining MLPs?
The average Gulf Coast 3-2-1 crack spread in 2Q16 was $11.30 per barrel. This is higher compared to an average of $8.90 per barrel in 1Q16 and $9.30 per barrel in 4Q15.
The spread in 2Q16 was, however, lower compared to that in 2Q15. The average spread was $15.00 per barrel in 2015.
The fall in the crack spreads shows the recovery in crude oil prices without a proportionate rise in the prices of refined products, especially gasoline, in 2016.
This hurts the profitability of refining MLPs such as Alon USA Partners (ALDW), Calumet Specialty Products Partners (CLMT), and CVR Refining (CVRR) because their input costs rise more than their revenues.