Crude by Rail Shipping Falling More than Expected

Railroad industry observers say that an expected drop in crude oil shipments by rail in 2015 has been falling off much farther than expected.

“The consensus view was that very high double-digit growth would moderate to low double digits, and as we have seen in recent weeks we’ve broken that floor and in some cases gone negative,” said Matt Troy, an analyst with Nomura Securities International Inc. in New York in an interview with Bloomberg News.

The Standard & Poor’s 500 Railroads Index is on course for the biggest weekly decline since September 2012, and lessors’ rates for oil cars have fallen by about a third in the past six months, Cowen & Co. said.

The falloff was expected after energy companies reduced drilling for oil in the wake of oil prices falling 50 percent since July 2014.

Railroad executives and industry analysts also thought the demand for hauling crude and such materials as frac sand and pipes would slow after a four-year surge.

In January, CSX and Canadian Pacific predicted that even in the face of oil falling below $50 a barrel that oil projects in progress would boost production and keep trains hauling even more crude oil than in 2014.

However, carloads of U.S. petroleum products have fallen 2.8 percent in the past four weeks after growing 13 percent in 2014.

CSX no longer expects to reach the high end of its forecast for crude oil carloads this year but still expects that oil shipments will increase said spokeswoman Melanie Cost.

Figures provided by the Association of American Railroads show that CSX’s petroleum products carloads rose 3.6 percent following a 60 percent gain last year.

Kansas City Southern has modified its 2015 revenue growth forecast because of lower-than-expected crude-by-rail shipments and a 20 percent decline in coal revenue in the first quarter as utilities switch to cheaper natural gas.

Canadian Pacific spokesman Martin Cej said that CP has not changed its forecast of 140,000 crude carloads in 2015.

The railroad posted a 9.1 percent increase in petroleum product carloads in the past four weeks, but that’s down from 16 percent last year and a third of the railroad’s forecast for a 27 percent gain in crude only carloads this year.

BNSF saw a 4.5 percent drop in petroleum products in the last four weeks after a gain of 12.4 percent last year. BNSF is the largest hauler of Bakken oil production from North Dakota.

Union Pacific, which serves Texas oil fields, saw its carloads drop 25 percent in the four-week period. Demand for frac sand, which is used to prop open the cracks in shale stone to release trapped oil, also has diminished.

“This is the first time that anybody has slowed down on fracking,” said Taylor Robinson, president of Chicago-based PLG Consulting.  “Nobody knew how fast they could shut down and it looks like they’re pretty fast. “Frac sand is going to fall off very quickly,” Robinson says. “Oil production within a couple of months is going to fall off very quickly.”

Union Pacific’s carloadings of stone, sand and gravel fell 6.3 percent in the past four weeks after jumping 22 percent last year. BNSF saw those commodities fall 3 percent after increasing 18 percent last year.

Tags: Bakken crude oil, BNSF, Canadian Pacific, Crude oil trains, CSX, Union Pacific