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Despite CSX CEO's Confidence, US Oil Railcar Rates Have Crashed To 3 Year Lows
Two weeks ago, rail freight transportation company CSX's CEO Michael Ward stated 'unequivocally' that as far as the movement of crude by rail he has "not seen any changes," suggesting everything's fine down to $30-35 oil and "expected no impact on crude shipments." It appears he may have been somewhat careful with the truth as Reuters reports, while overall oil-train traffic remains near record highs, the shadowy industry that deals in the specialized 87-tonne crude carriers has seen monthly lease rates plunge to $1,300 late last month from a high of $2,450 about year earlier with the rates at their lowest in about three years. Even worse, railcar construction has surged amid the mal-investment boom exaggerating the over-supply, with one trader noting brokers were offering cars at spot rates of as little as $500 a month compared with $4,000 a year ago.
CSX CEO giving the all-clear 2 weeks ago...
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And now, as Reuters reports, prices are plunging...
While overall oil-train traffic remains near record highs, the shadowy industry that deals in the specialized 87-tonne crude carriers is getting the taste of the wild swings that define the global oil market.
The sudden slump in the tank car market has more to do with narrowing crude oil spreads and ample tank car supply from manufacturers such as Greenbrier and American Railcar Industries than with more than 50 percent dive in U.S. crude prices over the past seven months.
But it may be an early warning for rail companies such as CSX, BNSF and Union Pacific, which have been resolutely upbeat despite growing expectations that booming U.S. oil production will begin to slow as soon as this summer.
Monthly lease rates for the most common of oil rail cars fell to $1,300 late last month from a high of $2,450 about year earlier, according to data obtained by Reuters from energy industry intelligence service Genscape.
The rates for cars, used to transport more than half of North Dakota's crude, are at their lowest in about three years, said Tom Williamson, owner of Transportation Consultants.
"It wasn't that long ago that you couldn't find a car to lease, now I'm getting calls from brokers offering the cars," he said, adding that he has received offers for 1,500 cars since late October.
And in the usual mal-investment-driven exuberance manner, supply has got ahead of 'real' sustainable demand...
The latest weekly Genscape data shows crude rail deliveries to East Coast refineries were down significantly.
As a result, the spot market for rail cars has all but dried up, prompting their owners to park about 15 unit trains in a Midwest facility until demand picks up, according to several industry insiders. The actual number of trains sidelined or converted for other uses is much higher, especially if Canada is included, sources said.
One trader said brokers were offering cars at spot rates of as little as $500 a month compared with $4,000 a year ago.
The slump comes while manufacturers are still working through orders for new cars that were placed during the surge in traffic. At the end of December, the backlog stood at 142,837 units, according to the Railway Supply Institute data, released Thursday.
New freight-car orders, however, fell to 37,431 in the fourth quarter, down 13 percent from last year's highs, the data showed. Macquarie estimates that new orders for tank cars will drop by 70 percent this year.
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Not unambiguously good at all...
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Baltic Dry Index is at 577, so, I guess they go sort of hand in hand.
Or, is that an over supply of tank cars now?
The first rule of CEO training (brought to you by Harvard Economics):
INVENTORY IS 'EVIL EMPIRE'.
So fucking Wall Street '90's! 'Just in time delivery'!
Do you remember when G.H.W. Bush (the Elder) tried to start the original 1991 'Desert Storm'? It took the CONUS NINE months (NINE FUCKING MONTHS!) to get all their shit to the staging area in Kuwait. WHY, you ask? Well, BECAUSE they were relying on LIBERTY SHIPS! YES, the stockpile of LIBERTY SHIPS from WWII! They couldn't fathom the FACT that all the ships were sinking at their moorings, and the ones they DID have still floating were so old they couldn't find anyone who could operate their antiquated systems. HELL, MOST of those nice new shiny M1A1 tanks had to be TRANSLOADED using LEASED ships flying the flag of fucking LIBERIA! There WAS NO 'merchant marine'!
I wonder what the BDI was doing, about then. I wasn't paying attention, 33 years ago. I sure the hell am NOW, though.
Most of CSX's rolling stock is approaching the FNM's, so I understand; in terms of quality. I'm not worried, though. I'm sure Barry's 'domestic army' of Mullato supporters is out there right now, rebuilding all the 'crumbling infrastructure' and fixing the trains and tracks.
I find it quite ironic that when the price of OIL goes up, the DJIA goes up as well. It was NEVER like this before...
we are short canadian pacific and the damn thing goes up every day. go figure. looks like ag/heavy industry/canada/housing/oil/china is all doing fucking great. like 20x earnings great.
Can't be both?
"Prompting their owners to park about 15 unit trains in a Midwest facility until demand picks up"
Ha, yeah right! Good luck with that one.
There's new regulations coming down which could effectively take off-line a sizeable chunk of the oil cars. However, like the WSJ reported a few months back - when the railway industry goes on a car construction boom, they inevitably over estimate demand and find themselves in trouble.
Here it goes:
The 'new' regulations are being drawn up by the E.P.A.; which 'requires' that all oil tank cars be painted BRIGHT WHITE; so that ANY leakage wiill be identified; and that ANY oil car be IMMEDIATELY WITHDRAWN FROM 'TRANSPORT'.
Building NEW CARS won't help in this 'environmental hurdle' thingie. You have to get the fucks who run the hoses that fill the cars to pay fucking attention, and the fucks that close the lids on the cars to stop smoking crack; and the fucks that repair the cars to give a SHIT about their weldments: AND, the fucks who get the contracts to manufacture the oil cars to actually hire people who care about the job they're doing (instead of worrying about the Union benefits and Retirement benefits while blaming 'the man' for the fact that they are ONLY getting $50.00 an hour).
OBAMA can SAVE US, though, from this issue of 'oil cars that drip oil'!
So basically you have to get the unions completely out of all aspects of the railroad business. Got it.
Wait until he gets revved up and explains how market forces will cause people to avoid spilling so much as a precious drop at a different price point.
The 'new' regulations are being drawn up by the E.P.A.; which 'requires' that all oil tank cars be painted BRIGHT WHITE; so that ANY leakage wiill be identified; and that ANY oil car be IMMEDIATELY WITHDRAWN FROM 'TRANSPORT'.
Great--so now the gangbangers and hood rats will have a "nice clean white" pallette for their tagging. Go long on rattle cans, short Burilington Northern. Hmm, what would Warren Buffett do?
so if those tankers have less than a 1000 bbl each capacity and they lease for $500/month that's still over fifty cents per barrel per month. Not bad if prices rebound quickly but if they don't well good luck.
More storage to manipulate the market with.
They need to build a train track to China. The US doesn't need as much oil as it did in 2007.
I thought someone was already on that.
Pretty sure it's one of those evil bad guys the media tells us to dislike, but I can't quite Put my finger In his name.
It is hard to take finance seriously with Obama preparing to arm Ukrainians to kill ethnic Russians on the border of Russia. We could all be crispy by April.
I see what you did there, tovarisch.
Don't worry demand is still the, "highest evah".
The thing about confidence, is that by the very essence of the concept it creates divergence from reality.
Hopefully that effin crony-in-chief Buffett is crappin' his pants too.
the fed and fed gub ain't gonna let buffett and munger take a loss on anything, ever
.
Depends overflow.
So it's now cheaper to lease cars, but has the price to haul them also gone down?
The guy is talking book----layoffs started at CSX in Nov of 2014-----
In the name of Social Jut Us, it is unfair some cars have Oil and some do not. Using my pen and phone, I am creating a Special Tax.
This is my business. There is a massive oversupply of tankers and a shortage of transload facilities. The transload facility projects in the pipeline seem to be in jeopardy so this isn't looking good for carriers. Upstream is taking the hits now, midstream is next. Without a reversal in crude prices this will get very ugly. I am revising budgets accordingly.
THIS is an interesting, and thoughtful comment (worthy of a question or two).
"Without a reversal in crude prices this will get very ugly."
"This is my business."
Lets' put this into perspective.
If crude oil prices rose to their all-time high levels (which were, I think, about $157.00 per barrel), would this be a 'good thing' as far as 'YOUR BUSINESS' is concerned? I assume that you are referring to the fact that prices dipped below $45.00 a barrel (before rising again to about $52.00 a barrel). Frankly, I'm looking forward to paying $5.00 a gallon at the pump; and the costs of electricity to rise, and the costs of delivery of goods due to the 'higher energy prices' to rise, and a general INFLATION OF EVERYTHING in price (so it would seem, as far as your comment).
If, however, crude oil prices were to DROP (say, to $15.00 a barrel), and more people had more capital that they didn't have to spend on getting to the gas station, and more people could re-invest their money on building capital outlays and actually building NEW 'transload facilities' instead of making up for 'C.O.L.A.' adjustments as per their 'Union Contracts'; and the costs of all 'consumer goods' went DOWN because it was CHEAPER to make steel and grow food, and drive to work;, is this a 'net negative' as far as your 'outlook' of the future?
Since you've been here for 1 year 17 weeks (hoping to figure shit out, but not understanding), I suggest that you get on to Forbes (dot com). Perhaps THEY can tell you about 'price reversals' and shit like that. Should the price climb (to $52, as it has in the past week) and keep CLIMBING, or should it drop to a number under $40?
How do you get oil out of the ground? Well, you drill a hole, and then when the pressure drops, YOU SUCK IT. How do you fill your gas tank? Well, you wait for a tanker, and they PUMP IT into the ground, and then you pay central bank notes, and they start some pumps up that SUCK IT UP.
But aren't you *really* talking about an expansion or contraction of credit, not 'capital, in the face of these less painful energy price gougings? People will have more of the dollars (they aren't earning at real jobs) available for extinguishing the debt they've accumulated while waiting for a good union job (with COLA adjustments just like the goobers!), not a flood of investment dollars waiting in the wings to rescue overly-eager shipping would-be magnates from their folly.
I can't wait until the cheap gas savings pass through to me through my medical insurance provider.
Take the North American EOR producers offline you instantly hit peak oil. Peak oil coupled with a few million barrels a day deficit will make you wish for $5 gas.
They have the right away, so why don't they just add more cars, link them together and turn the oil-train into a pipeline?
Send check to. . . .
Wrecking trains is SERIOUS BUSINESS.
CSX CEO, 3 February 2015: "Everything is AWESOME!"
CSX CEO, 3 May 2015: "Downsizing was a required action, given the economic indicators."
CSX CEO, 17 May 2015: "I hereby tender my resignation."
Train Wreck: Experiments To Derail Trains - World War Two Archive Footage - WDTVLIVE42https://www.youtube.com/watch?v=D-8gV4DJZUw
10 to 1 odds: the CSX CEO never spent a day in his life actually, well, WORKING (on or with trains). I'm going to make some dinner now, consisting of beans and rice. After I get done counting the beans, I suppose I'll try counting the grains of rice. After all, I want to know EXACTLY what I'm going to eat (tomorrow night when I get done making sure that the shareholders in my family get exactly the same number of beans, and exactly the correct count of rice). (Cue the theme from 'The Lego Movie', A.K.A. the unofficial 'Obama Theme Song', A.K.A. 'Everything Is Awesome!')
'TRANSLOADING FACILITIES', my ASS! The B.D.I. is crashing, as well, 'CSX' C.E.O.!
?When the music's over...
...Turn out the lights...Turn out the lights...?
So ascii symbols for music notes get turned into question marks? WTF...
Willie does it better:
https://www.youtube.com/watch?v=tsTAUs_h_uY
Time to change over to haul the rotting food stuffs.
http://www.commondreams.org/news/2014/08/26/midwestern-wheat-left-rottin...