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Railroads Hit By Falling Oil And Coal Production

Railroads Hit By Falling Oil And Coal Production

According to the Association of American Railroads shows that rail traffic continues to slow down, as shipments of a range of commodities are sharply lower from a year ago.

New data shows fewer shipped cargoes of coal, grain, metals, and oil across the United States in early November. For example, coal shipments are down 9.7 percent year-to-date compared to the same period in 2014. Cargoes of oil and other petroleum products are also down 7.7 percent over the same timeframe.

For coal, the slowdown is due to dramatic fall off in coal production. As more and more coal plants are shuttered because of cheap natural gas, growing renewable energy, and the tightening noose of environmental regulations, utilities need a lot less coal than they once did. That is putting a lot of coal producers out of business. U.S. coal production could hit just 921 million short tons in 2015, a decline of 7.5 percent from 2014 and the lowest total in nearly three decades. Related: A Bit Of Good News For The Global Coal Industry At Last

Another reason the bull market for railroads has come to an end is the falling production of oil from major U.S. shale plays generally, and the Bakken in particular. The EIA predicts that Bakken oil production will fall by another 27,000 barrels per day in December to 1.1 million barrels per day. That comes after a decline of 23,000 barrels per day in November. Drillers are pulling up stakes and cutting back on drilling. North Dakota now only has 66 active rigs drilling for oil, about one third of the 188 that the region had in November 2014. The problem for the Bakken is that for refiners on the U.S. East Coast, the extra costs of shipping crude by rail have suddenly made importing oil from abroad more favorable. As a result, U.S. oil imports are rising, while shipments of crude from North Dakota have taken a hit. Related: OPEC Hoping Chinese, Indian Demand Can Alleviate Glut

The slowdown is bad news for railroad companies, but they are making up for it by shipping agricultural products. Last year, grain piled up as farmers were unable to find available rail capacity to ship their products. With coal and oil no longer clogging up the rails, grain shipments have surged, hitting a five-year high.

By Charles Kennedy of Oilprice.com

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  • 2001 redux on November 12 2015 said:
    overnite collapse of rail and truck traffic is one for the record books,like someone just turned out the gd lights,looks like oct 2001 all over again except with 20 trillion in fresh dept that has to be bled off

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