Railroads carried less crude oil in the first quarter as oil companies scaled back domestic shipments. The Association of American Railroads reported that crude oil carried by big U.S. railroads fell nearly 14% to 113,089 carloads compared with the fourth quarter of 2014.
The railroads have been major beneficiaries of the U.S. energy boom, as oil companies shipped crude oil from the Bakken Shale in North Dakota to refineries on the coasts.
But as the price of oil tumbled, shipments dipped. Crude-by-rail shipments are still a small part of railroads’ total revenues—only about 5% for the sector combined with drilling supplies—but the business has grown at a rapid rate in recent years. The tonnage of crude petroleum carried by U.S. railroads soared from about 5 million tons in 2011 to about 38 million tons in 2013, according to the AAR.
Industry executives have cautioned that lower oil prices could end up slowing volume growth this year because the low prices won’t support Bakken Shale crude, which is more expensive to extract and ship than other oil. Carloads of crude oil posted a slight decline of 0.9% in the fourth quarter of last year compared with the third quarter, according to the AAR. Total 2014 carloads increased 21% to 493,126.
The recent rally in oil prices could bode well for the rails, however, Morgan Stanley analysts wrote in a research note this week. Light, sweet crude for July delivery was trading Thursday morning at above $60 per barrel, up from a low of $47.46 in March.
Total rail cargo volumes have continued to come in below expectations, but a rally in energy prices could help boost railroad stock prices, the analysts said. Overall, U.S. rail traffic for the week ended May 16 fell 3% to 549,199 carloads and containers, according to the AAR. Year-to-date, traffic was down 0.3%.
