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Oil producers in Canada are having trouble finding rail space for their commodity due to a pipeline shutdown that caused a backup in Alberta tank farms.
“It’s hard for the railroads to change their operating plan really quickly,” Steve Owens, rail analyst at IHS Markit, said in a phone interview with World Oil. “There are equipment constraints and crew constraints.”
Heavy oil prices dropped to a four-year low this week, causing a boost in demand from American buyers. But the pipeline shut down and a preexisting grain delivery backlog are putting pressure on the railway infrastructure. The Canadian rail system had already put a pause on its oil delivery business prior to the current crisis.
“For crude, and it is by choice, we will take a bit of a growth pause,” Jean-Jacques Ruest, Canadian National’s chief marketing officer, said during an investor conference call back in October. “We get the sense that customers still have capacity in the pipeline. Otherwise they’d be maybe behaving differently. They would be more willing to make commitments.”
Western Canadian heavy crude’s price discount to WTI widened to the most in three years, at $23 for the January contract and $27 for the December contract, after Enbridge announced a new rationing of space in parts of its Mainline network, which is used to carry most of the crude Canada exports to the United States.
The rationing was prompted by unplanned outages. Enbridge’s announcement for an apportionment on parts of the Mainline network is the second in two months, sparking worry about a glut. Another two-week suspension of TransCanada’s Keystone pipeline following a leak also caused a build of crude oil inventories in Alberta, pressuring prices downward. Environmental regulators are currently investigating the cause of the 5,000-barrel leak at Keystone, causing an extended decrease in capacity.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…