UPDATE 1-Surge in U.S. oil-by-rail suffers first slowdown as spreads slim

Fri Jun 14, 2013 4:51pm EDT
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By Jonathan Leff and Nia Williams

NEW YORK/CALGARY, June 14 (Reuters) - Oil traders are gently tapping the brakes on the thriving business of shipping U.S. and Canadian crude oil by rail, industry data showed this week, the first sign of a slowdown after a two-year boom.

As price spreads for moving sweet North Dakota or Canadian crude to premium markets on the Gulf Coast slump to their lowest since early 2011, companies are shifting more oil back through pipelines rather than using costlier railcars, raising new questions about the longevity of oil-by-rail.

The number of railcars loaded with crude or refined fuel per week in the United States has dropped by about 5 percent since reaching a record 14,500 tank cars during May, according to Reuters calculations based on data from the Association of American Railroads released on Thursday.

At 13,664 cars through June 8, the latest week's loadings are still up 28 percent from a year ago, equivalent to about 1.4 million bpd. With crude oil estimated to make up about half of all such shipments, that's about a 10th of U.S. production. Weekly AAR data does not distinguish between crude and refined fuels.

Still, the annual growth rate is much slower than the 50 percent surge since the start of the year. In the first quarter alone, crude oil shipments jumped by 166 percent to the equivalent of 760,000 bpd, AAR said last month. Since early 2011, traffic has been growing, mostly steadily, every week.

Apart from a brief dip in early 2013, this is the first meaningful slowdown since oil companies began reviving a mode of transport that most had abandoned decades ago, using the rails to help get a gusher of shale oil production in remote areas not served by pipelines to refiners eager for cheaper oil.   Continued...