Shortage of rail cars strands Alberta oil shipments

Harsh winter conditions as well as Canadian railways’ recent volume growth have stranded some Alberta oil shipments.  CP Rail photo.

Stranded Alberta oil shipments have led to plummeting crude prices

Bloomberg reports a shortage of rail cars in Canada is stranding some Alberta oil shipments, and has resulted in a significant price drop for Canadian crude.

Harsh winter conditions have left Canadian rail companies unable to deliver enough cars at a time when rising energy production has boosted demand.

The squeeze has meant supplies of Alberta oil are stuck in the landlocked province and the discount price compared to New York futures is at its highest in over four years.  Canadian heavy oil’s discount compared to WTI futures widened to $30.60 last week.  This is the largest discount since December 2013, according to Bloomberg data.

Canadian National is bringing on additional crews and locomotives as soon as the ground thaws, according to spokeswoman Kate Fenske.  She adds the company plans to boost capital spending to $3.2 billion this year to support network capacity.

The rail companies say they are struggling to accommodate a surge of oil production after several years of output reductions.  According to Bloomberg, railways dealt with a 45 per cent demand in crude by rail shipments in the third quarter.

Ghislain Houle, CNR’s chief financial officer said the recent surge in demand “caught us a little by surprise”.

The crunch comes at a time when demand from other sectors, including frack sand is also on the rise.

Canadian farmers are also caught up in the rail car backlog.