May 24, 2012 / 8:00 PM / 6 years ago

CP Rail strike may end before oil slumps

CALGARY, Alberta (Reuters) - A strike at Canadian Pacific Railway Ltd (CP.TO) 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 broke down.

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 (CNR.TO) 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. During the winter, the spread widened to beyond $35 under WTI. July synthetic was bid at $4.50 a barrel under WTI.

“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 (CPG.TO), 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 (CVE.TO), said it was forced to seek pipeline space for about 2,000 bpd and was confident it would find it.

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