Canadian National Railway Expects More Crude By Rail In H2

Canadian National Railway (CN) expects to move more crude oil by rail in the second half of this year as it will have more capacity on its trains, chief executive officer Jean-Jacques Ruest told analysts on Tuesday.

“In the second half we will have more capacity, therefore we will also be able to execute a bigger book of business of crude,” Ruest told analysts after the company reported second-quarter profits, beating analyst estimates thanks to higher volumes of commodities moved by rail, including crude oil.

CN’s crude by rail revenues rose in Q2 compared with the same period last year, thanks to better pricing, Ruest told analysts.

With pipeline capacity out of Canada full, oil producers look for more crude-by-rail shipments to move their production to the market.

Due to the transportation bottlenecks, the discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to WTI has been US$20, and at times US$30 a barrel this year.

Canada’s crude by rail exports jumped to a record high in April 2018, the latest available data by the National Energy Board (NEB) showed earlier this month. In April, crude by rail exports hit 193,468 bpd, up from 170,622 bpd in March. The April crude by rail volumes beat the previous record of 178,989 bpd moved by rail in September 2014, according to NEB data.

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According to Deloitte’s Price forecast report from June 30, Canadian WCS differentials to WTI narrowed to US$16.74 a barrel in May 2018, declining by around 30 percent from Q1 2018, but recent trends show a return to historical averages.

“Increased rail shipments of crude oil reduced transportation bottlenecks for the Western Canadian Sedimentary Basin in Q2 2018, with shipments expected to continue to increase for the remainder of the year to accommodate oil sands production,” Deloitte said.

“In addition, Canadian heavy crudes should experience increased demand from Gulf Coast refineries as they replace Venezuelan heavy crudes, the production of which continues to decrease.”

By Tsvetana Paraskova for Oilprice.com

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