* Trains are important option for shipping crude
* Ottawa expected to force employees back to work
* U.S. workers are still on the job
* Spreads could suffer if labor dispute drags on
By Jeffrey Jones
CALGARY, Alberta, May 24 A strike at Canadian
Pacific Railway Ltd is unlikely to drag on long enough
to prompt a return to bargain-basement price discounts for
Canadian crude oil, growing volumes of which is moving to market
by train as pipelines run nearly full.
In addition, far greater volumes move on trains from North
Dakota's booming Bakken shale oil region, where the carrier's
workers remain on the job, another factor that should prevent a
price collapse, at least for awhile, analysts said.
About 4,800 CP Rail locomotive engineers, conductors and
traffic controllers represented by the Teamsters Canada Rail
Conference walked off the job on Wednesday after contract talks
Canadian Labour Minister Lisa Raitt said the government
could legislate employees back to work as early as Monday. The
Conservative government of Prime Minister Stephen Harper has
been quick to step in to halt work stoppages involving transport
companies, citing the potential to harm the economy.
While railroads including CP Rail and Canadian National
Railway Co still move a relatively small portion of
Canada's roughly 3 million barrels a day of oil output, they
have provided a release valve as efforts to boost the capacity
of major pipelines run into regulatory and political obstacles.
So far, the CP Rail dispute has not affected price
differentials for key crude types derived from the Alberta oil
sands such as light synthetic and Western Canada Select heavy, a
trade source said.
"CP would have to be out for weeks for it to take any
effect," the source said.
The strike began in the normally slow trading period for
Canadian crude in the last week of the month before business for
July deliveries will begin in earnest.
WCS for July was discussed in a range of $18 to $18.75 a
barrel under benchmark West Texas Intermediate, according to
Shorcan Energy Brokers, down about $2.50 from June business
quoted las t week. D uring the winter, the spread widened to
beyond $35 under WTI. July synthetic was bid at $4.50 a barrel
"I expect that there will be little or no impact on
differentials as most of the crude volumes that matter to
differentials are being moved on the U.S. side of the border,
which is not affected by the strike," said Martin King, analyst
with FirstEnergy Capital Corp.
In a report, Wells Fargo Securities analysts said Bakken
producers in North Dakota are not directly exposed to the CP
Rail dispute but cautioned that pipeline capacity could tighten
incrementally if the dispute drags on.
In addition, Wells Cargo said a prolonged walkout could
affect the WCS spread due to what it termed "CP's leading
position in the Alberta oil sands."
On Wednesday, Crescent Point Energy, one of the
largest oil producers in Saskatchewan, said it normally moves
about 8,000 barrels a day by rail, a volume that has increased
since loading facilities were installed about half a year ago.
It sees only a minimal impact on its operations, especially
given expectations for Ottawa to step in and end the walkout.
A second Saskatchewan oil producer, Cenovus Energy Inc
, said it was forced to seek pipeline space for about
2,000 bpd and was confident it would find it.