Tuesday, February 10, 2015

Oil-by-rail economics suffers amid narrowing spreads

From:  Edmonton Journal 

By Yadullah Hussain, Financial Post

 Oil-by-rail economics suffers amid narrowing spreads
Canadian crude oil exports by rail — not counting domestic hauls to refineries — grew to just over 182,00 barrels per day by the third quarter, compared to around 165,000-bpd at the start of 2014, the latest available figures from the National Energy Board show.

Rail was seen as a lifeline for Canadian oil producers in the absence of new pipelines, but narrowing spreads between Canadian oil and global benchmarks in recent months is turning the business model uneconomic in an already depressed price environment.

“Right now, there are very few movements of crude by rail coming from Western Canada into the Gulf Coast, because it just does not make sense economically,” said Bridget Hunsucker, analyst at Genscape, which tracks weekly oil carloads across North America.

Before oil prices sank, Canadian producers shipped oil on rail to fetch much higher West Texas Intermediate oil prices on the U.S. Gulf Coast than they could at the Hardisty terminal in Alberta. The business made sense even after taking into account transportation costs as high as $21 per barrel of oil on rail, compared to $7 via pipeline.  MORE

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