As U.S. crude prices fall, rail shipments rise

Reuters

* Oil by rail rebounding with double-digit U.S. crudediscounts to London's Brent

* Loadings surpassing 600,000 bpd, more than double summerlows - CIBC

By Kristen Hays

HOUSTON, Oct 23 (Reuters) - The volumes of U.S. crude movingby train is on the rise again after a pullback earlier this yearwhen higher oil prices eroded the savings of moving it tomarkets via rail, analysts and railroad executives say.

Known loadings hit new highs last week, passing the 600,000barrels per day mark, the financial services firm CIBC said in anote to investors on Wednesday.

Railed volumes of North Dakota Bakken shale oil had dippedthrough the summer when discounts to London's Brent narrowed somuch that imports were more attractive to East Coast refiners.

Imports into the East Coast region fell to about 800,000 bpdlast week, down nearly 500,000 bpd from September highs, thebank said.

West Texas Intermediate, the U.S. crude benchmark, traded ata discount of more than $20 a barrel to London's Brent inFebruary as output outran pipeline infrastructure to move it tomarkets.

Such wide discounts make moving crude by rail profitable,even with per-barrel transportation costs of $10 to $16 - twiceas much or more than via pipeline.

However, by mid-summer the discount narrowed to less than $2a barrel as some pipeline projects came online and refinersundergoing seasonal maintenance took in less crude.

"Our crude oil shipments out of the Bakken region felldramatically due to commodity spreads that made rail shipmentsuncompetitive from that region," Dave Ebbrecht, chief operatingofficer for Kansas City Southern, told analysts lastweek.

Tom O'Malley, Chairman of independent refiner PBF Energy, told analysts in August that he'd rather take importsover Bakken crude at the company's East Coast refineries withsuch narrow discounts.

On Wednesday, though, WTI traded at a $10.64 discount toBrent .

Also Bakken crude, which trades cheaper than WTI, narrowedits discount to Brent last summer but has since more thandoubled to about $23 a barrel in the last month, CIBC noted.

Railroads say they're seeing Bakken shipments rebound,albeit slowly, as the U.S. crude discount to Brent widened.

"We have seen some modest recovery of Bakken shipments veryrecently," Ebbrecht said.

Union Pacific, the largest U.S. railroad, saw crudevolumes fall by 5 percent compared to a year ago on severalfactors, from higher U.S. crude prices to startups of morepipeline capacity, primarily in Texas and Oklahoma, Eric Butler,executive vice president of marketing and sales, told analystslast week.

However, he noted that steady demand has kept shipmentsrunning to the growing rail and storage hub at St. James,Louisiana, where copious connections to pipelines and refinersmaintain its resiliency to volatile oil markets.

"While crude oil volumes will always be subject to the upsand downs of market spreads, we believe the long-termfundamentals of crude by rail remain attractive," Butler said.

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