Union Pacific Corporation (UNP): The Staggering Growth of Crude Oil Shipments by Rail

The future of crude-by-rail
Going forward, however, the pace of rail-based crude shipments could slow because of a couple of major reasons. First, U.S. benchmark crude oil prices have risen significantly this year, with the spread between Brent and WTI currently less than $5 a barrel. This means lower profits for the companies that benefited so handsomely from the price arbitrage opportunities they exploited by shipping oil to remote locations accessible only through rail.

And second, despite heavy investment in rail cars by several refineries, there simply may not be enough of them. According to the EIA, there is a current backlog of about 60,000 rail cars, which effectively reduces U.S. crude-by-rail capacity by about 115,000 barrels per day.

Still, this is not to say that crude-by-rail shipments will fall off a cliff. It just suggests that rail shipments may not grow as rapidly as they have over the past year or so. Going forward, it will also be interesting to see whether rail’s advantages of flexibility, consistency, reliability, and speed to market will be enough to overcome growing competition from the numerous new pipeline projects set to go into service by the end of next year.

The article The Staggering Growth of Crude Oil Shipments by Rail originally appeared on Fool.com.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway.

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