North American Railroads Caught by Speed of Crude-Oil Collapse

[AgentKid]

Murphy Siding

As soon as something ugly starts in one of those areas-the Middle East, Russia, Venezuela, Canada(just kidding)- the market panics and oil skyrockets.

My favourite line from when I worked in the oil patch was; the first time each fall that a trader on the NYMEX saw exhaust coming from his car when he started it in the morning, the price of Natural Gas always rose $0.50/MMcf.

Bruce

 

[CMStPnP]

Over reaction by NYSE in my opinion.    My CSX stock has dropped $5 a share and that in my view is a buying opportunity.    Adding fuel to the fire is KCS which downgraded it's earnings outlook fueling the NYSE hysteria.   CSX is not KCS and KCS I think is a lot more thinly capitalized plus it has exposure to Mexico and the Strong Dollar impact vs the Mexican Peso.

[MidlandMike]

Investor media like Bloomberg seem to think if a business isn't growing by double digits, it's in freefall.  Of the two big Bakken crude haulers, BNSF was down 4.5%, but CP was up by 9% for the last 4 weeks.

Now lets look at actual production figures:

https://www.dmr.nd.gov/oilgas/stats/historicaloilprodstats.pdf

You will notice that since June 2014 when we started talking about the oil price drop, North Dakota production went up from 32 million barrels for that month, to 38 million bbls for the month of December.  Now for the month of Jan 2015, production went down a litle over 1 million bbls.  The price drop catching up with production?  Maybe, but also look at the production trend for the last two years.  It grew fairly steady thru the year, until the winter months where if sometimes fell up to a million.  Northern winters cause all sorts of problems from moisture in lines, hydrates, paraffin, etc, to all the normal problems of trying to conduct operations outside in the winter.  I suspect the present production drop is a combination of both weather and economics.

Bloomberg is right about a freefall in fracking.  Drilling is the first thing to go in an oil pice drop.  When dilling and completion projects already underway or commited were finished, drilling rigs were released.  When new wells stop coming online, production from existing wells will follow a natural decline curve.

Saudi Arabia was keeping up production, prices notwithstanding.  But now that they have started bombing the Iranian supported faction in Yemen, all bets are off, and there has been an oil price spike.

[Ulrich]

BaltACD

All the bulk commodities that the railroads haul are subject to peaks and valleys as the economy and the markets change.  What goes away today because of market forces, will come back tomorrow when the market forces change back.  There is nothing that is static in the economics of the world.

 

 

Exactly. And this lull in traffic might be used to advantage to make needed improvements.

[BaltACD]

All the bulk commodities that the railroads haul are subject to peaks and valleys as the economy and the markets change.  What goes away today because of market forces, will come back tomorrow when the market forces change back.  There is nothing that is static in the economics of the world.

[Murphy Siding]

dakotafred

 

 

Murphy Siding

The price of oil is based on a world market.  A lot oil comes from some pretty unstable parts of the world.  As soon as something ugly starts in one of those areas-the Middle East, Russia, Venezuela, Canada(just kidding)- the market panics and oil skyrockets.

 

 

 

 

This is the calm diagnosis, which is supported by history. In the meantime, in my opinion, the rails should use the time provided by relaxed traffic to polish up their oil-train operations.

 

    And move every single bushel of grain in the Dakota 

[dakotafred]

Murphy Siding

The price of oil is based on a world market.  A lot oil comes from some pretty unstable parts of the world.  As soon as something ugly starts in one of those areas-the Middle East, Russia, Venezuela, Canada(just kidding)- the market panics and oil skyrockets.

 

This is the calm diagnosis, which is supported by history. In the meantime, in my opinion, the rails should use the time provided by relaxed traffic to polish up their oil-train operations.

[YoHo1975]

Ironically, on the same day this article came out, violence in the mid-east caused worries about gulf access and sent crude spiking up again. And of course out here in the land of Fruits, Nuts and Flakes, prices already shot up due to another refinery fire. Obviously things will settle down and the Macro-Economic incompetence in Europe is going to keep things depressed for some time, but still it is ironic timing. Reporting on NPR a few months ago indicated that Bakken breaks even at around $45/bbl. And the existing wells are sunk cost so they'll keep pumping. I'd think Tar sands would take the hit first.

[petitnj]

Predictions are very hard to make -- especially when it comes to the future. Business schools teach forecasting, but the assumption is that the future reads the same assumptions. Luckily the railroads will still run near capacity as grains and other commodities are still in demand. 

[oltmannd]

Saudi used to play swing supplier to keep prices up.  Now, they are making us be the swing supplier.  The highest cost to produce gets whacked first.  ND Bakken is that oil.

[Murphy Siding]

“We would not be surprised if the downward trend continues as long as oil prices remain depressed,” Jason Seidl, a New-York-based Cowen analyst, said in the report.

     And the flipside:  When oil prices start to climb again, this trend will then turn upward again.  Remember the last time that oil prices dropped fast and gas hit $1 a gallon?  Me neither.  The price of oil is based on a world market.  A lot oil comes from some pretty unstable parts of the world.  As soon as something ugly starts in one of those areas-the Middle East, Russia, Venezuela, Canada(just kidding)- the market panics and oil skyrockets.

[traisessive1]

The recession is setting in. 

[schlimm]

I saw several articles about the impact of the collapse of oil prices several months ago and mentioned it on the forum, but no one wanted to believe the obvious.

[Ulrich]

I think you're right about the hard years ahead.. Oil isn't the only commodity that's down. Steel shipments are also way down so far this year.

[lenzfamily]

zardoz

http://www.bloomberg.com/news/articles/2015-03-27/north-american-railroads-caught-by-speed-of-crude-oil-collapse

Quite an interesting (to me, anyway) about the decline of the new oil shipments.

 

Zardoz

I've been wondering when this would happen. Given the Just in Time nature of the commodity supply chain we live with now, I thought it could have happened sooner than it has. I don't want to be a pessimist but I foresee a couple of hard years (or more) coming up for the North American and International economy. 

Bloomberg is reputable in the NA investment field IMO. If this is in their sights we'd be wise to sit up and take notice.

Charlie

Chilliwack, BC

[zardoz]

http://www.bloomberg.com/news/articles/2015-03-27/north-american-railroads-caught-by-speed-of-crude-oil-collapse

Quite an interesting (to me, anyway) about the decline of the new oil shipments.