Credit Suisse Expects Another Strong Year For Refiners In 2016

• Credit Suisse maintains a bullish outlook for U.S. independent refiners in 2016.
• The firm believes that 2016 earnings will be boosted by historically strong gasoline demand.
• Credit Suisse sees coastal refiners as best-positioned to benefit from the current environment.

In a new report, Credit Suisse analyst Edward Westlake discusses the 2016 outlook for U.S. independent refiners. Westlake believes that the favorable market conditions that drove the refining business in 2015 will carry over into next year as well, making many refiner stocks strong buys.

Robust gasoline margins
Westlake notes exceptionally strong gasoline margins in the summer of 2015 driven by strong demand in the U.S. and China. In fact, 2015 global gasoline demand grew at three times its historical rate in 2015. While consensus expectations for gasoline demand predict a regression closer to the long-term trend in 2016, Westlake believes that gasoline demand has at least another year of strong demand growth remaining.

Equity outlook
Most refiner stocks have done pretty well lately, and Westlake has even been surprised at Q4 performance thus far. “There is around 20% still to play for (and more if gasoline spikes), but after the move, fresh money may want some kind of pull-back,” he explains.

Looking ahead to 2016, Westlake sees an environment conducive to earnings strength, especially among coastal names. “On balance, we think 2016 will be characterized by healthy earnings (driven by gasoline), with complex coastal refiners able to process cheaper medium crudes, with narrow mid-con crude differentials, and with diesel margins remaining challenged,”

Stock picks
Credit Suisse has Outperform ratings on the following stocks:
Alon USA Partners LP ALDW
Calumet Specialty Products Partners, L.P. CLMT
Delek US Holdings, Inc. DK
Marathon Petroleum Corp MPC
Northern Tier Energy LP NTI
PBF Energy Inc PBF
Tesoro Corporation TSO
Valero Energy Corporation VLO
Western Refining, Inc. WNR

Disclosure: the author holds no position in the stocks mentioned.