CP Crude Oil Traffic Could Fall to Zero, Use of Tank Cars for Crude Oil Storage Seen as Unlikely

Despite initial opposition, U.S. railroads may be at least taking a look at allowing oil companies to use tank cars for storage.

However, Cowen & Company Freight Transportation Analyst Matt Elkott told Railway Age that Canadian National and Canadian Pacific don’t want that business because any revenue gained would not outweigh the potential financial liability.

Elkott said tank cars would in theory be used to store at least 25 million barrels of crude oil.

The crude oil by rail market has fallen during a global conflict between Russia and Saudi Arabia over production levels and pricing that has sent the price of barrel of crude plunging.

There is no evidence yet, Elkott said, that crude oil is being stored in tank cars and he said that for now it seems unlikely that it will happen.

Elkott said U.S. railroads have largely been silent on the prospect of storing crude oil in tank cars which might mean they are more open to it than their Canadian counterparts.

Aside from regulatory and liability concerns, railroads might oppose storage of crude oil in tank cars because it would accelerate corrosion of those cars.

In an unrelated development, the decline in crude oil prices could lead CP’s oil transport traffic to fall to zero or near zero.

The carrier hauled a record 36,000-plus carloads of crude in the first quarter of 2020, but the economic downturn triggered in part by the COVID-19 pandemic combined with falling oil futures has led CP to project a steep drop in crude oil traffic.

Oil futures fell below $0 a barrel on Monday although production has not fallen as fast as demand.

CP expects a double-digit decline in crude oil volume in the second quarter.

Crude oil extracted in Alberta and the Bakken region of North Dakota is placed in unit trains that CP interchanges with all U.S. Class 1 railroads for shipment to refineries.