* Oil by rail rebounding with double-digit U.S. crude
discounts to London's Brent
* Loadings surpassing 600,000 bpd, more than double summer
lows - CIBC
By Kristen Hays
HOUSTON, Oct 23 The volumes of U.S. crude moving
by train is on the rise again after a pullback earlier this year
when higher oil prices eroded the savings of moving it to
markets via rail, analysts and railroad executives say.
Known loadings hit new highs last week, passing the 600,000
barrels per day mark, the financial services firm CIBC said in a
note to investors on Wednesday.
Railed volumes of North Dakota Bakken shale oil had dipped
through the summer when discounts to London's Brent narrowed so
much that imports were more attractive to East Coast refiners.
Imports into the East Coast region fell to about 800,000 bpd
last week, down nearly 500,000 bpd from September highs, the
West Texas Intermediate, the U.S. crude benchmark, traded at
a discount of more than $20 a barrel to London's Brent in
February as output outran pipeline infrastructure to move it to
Such wide discounts make moving crude by rail profitable,
even with per-barrel transportation costs of $10 to $16 - twice
as much or more than via pipeline.
However, by mid-summer the discount narrowed to less than $2
a barrel as some pipeline projects came online and refiners
undergoing seasonal maintenance took in less crude.
"Our crude oil shipments out of the Bakken region fell
dramatically due to commodity spreads that made rail shipments
uncompetitive from that region," Dave Ebbrecht, chief operating
officer for Kansas City Southern, told analysts last
Tom O'Malley, Chairman of independent refiner PBF Energy
, told analysts in August that he'd rather take imports
over Bakken crude at the company's East Coast refineries with
such narrow discounts.
On Wednesday, though, WTI traded at a $10.64 discount to
Also Bakken crude, which trades cheaper than WTI, narrowed
its discount to Brent last summer but has since more than
doubled to about $23 a barrel in the last month, CIBC noted.
Railroads say they're seeing Bakken shipments rebound,
albeit slowly, as the U.S. crude discount to Brent widened.
"We have seen some modest recovery of Bakken shipments very
recently," Ebbrecht said.
Union Pacific, the largest U.S. railroad, saw crude
volumes fall by 5 percent compared to a year ago on several
factors, from higher U.S. crude prices to startups of more
pipeline capacity, primarily in Texas and Oklahoma, Eric Butler,
executive vice president of marketing and sales, told analysts
However, he noted that steady demand has kept shipments
running to the growing rail and storage hub at St. James,
Louisiana, where copious connections to pipelines and refiners
maintain its resiliency to volatile oil markets.
"While crude oil volumes will always be subject to the ups
and downs of market spreads, we believe the long-term
fundamentals of crude by rail remain attractive," Butler said.