Bank of America Merrill Lynch has upgraded their Atlantic Basin gasoline crack spread forecasts for 2016. “We upgrade our Atlantic Basin gasoline crack spread forecasts for 2016 and see US RBOB cracks averaging $13/bbl, slightly above the current forward, from $10/bbl prior,” BofAML said.

This is beacause the combination of cheap crude oil prices, continued strong demand growth, low inventory coverage, and an upcoming shortage in summer blending components suggests gasoline may tighten into next year's driving season.

Refined product margins have been exceptional this year. Low crude oil prices first boosted petroleum demand growth to 1.7 million b/d, far outpacing this year's expansion in refining capacity. This resulted in lofty complex refining margins.

As run rates picked up around the world, spare refining capacity started to shrink and marginal European refineries were called on to meet demand. More recently, refined petroleum products have started to cool off and margins have declined below last year's levels, in line with our expectations, on exceptionally weak mid distillates balances.

Yet light product balances appear tight when looking into 2016. Surely, an oversupplied market in winter gasoline components suggests gasoline may have little near-term upside. Next year, though, the outlook for gasoline brightens up.

From an upstream perspective margins may also be supported next year by a persistent global crude oil surplus, at least until 2H16. Moreover, the Bank see global demand growth for petroleum products outpacing additions of crude distillation units for the 6th consecutive year in 2016.

“We find that in years when demand growth is a multiple of capacity growth, margins tend to be supported. And following exceptionally strong demand growth this year, spare refining capacity is already low. With the support of gasoline, we see healthy refining margins through at least 1H16.”
Source: Bank of America Merrill Lynch