Oil-by-rail expected to rise further after hitting record in May

Canadian shipments of oil via rail have hit an alltime record high, and analysts expect shipments to go higher amid a pipeline crunch. New data from the National Energy Board shows Canadian oil companies shipped an average of 198,788 barrels of oil per day on railway cars in May, the latest month for which data is available, marking a record high and a 42-per-cent increase over the 130,916 bpd shipped on rail in the same month a year earlier. Over the same period, Canadian oil production is expected to have risen to 4.5 million bpd, from 3.9 million bpd according to an NEB forecast. The dramatic increase has come as new pipelines have been delayed and operators are rationing space on existing pipelines as more oil is being produced in Western Canada than can fit into the country’s current pipe network. “The pipelines remained constrained,” IHS Markit vicepresident, North American crude oil markets Kevin Birn said, adding that the ramp up in crude oil by rail shipments is expected to continue. IHS Markit has estimated Canadian producers would ship between 200,000 bpd and 300,000 bpd on railway cars this year. Last week, a handful of major Canadian oil firms indicated that they were working to secure more rail terminal capacity amid the pipeline shortage. “When I talk about rail, I’m really thinking about something that is material and structural,” Cenovus Energy Inc. president and CEO Alex Pourbaix said on his company’s earnings call last week. He added that Cenovus would add more railway cars and aims to ship between 50,000 bpd to 60,000 bpd. Pourbaix said Cenovus was increasing rail shipments at a measured pace because striking a deal for railway capacity “is a very, very complex transaction.” “It isn’t quite as easy as just getting a deal done with the rail companies. To do it on that kind of a scale requires further car leasing, tank leases, liability management,” he said. “We’re talking about a very material commitment and from my perspective, it is important that we do this on an urgent basis, but it is way more important that we get it right rather than we get it done quickly.”