More crude oil coming from Canada by rail

U.S. imports of Canadian crude oil shipped by rail increased to a monthly record of 205,000 barrels per day in December, according to the U.S. Energy Information Administration. The imports by rail rose as Canadian crude oil prices fell and oil production in Canada increased at a faster rate than pipeline capacity expanded, which would’ve allowed for increased exports to the United States.

Whether the imports by rail remain elevated is uncertain even as demand for Canadian crude oil is strong, especially on the U.S. Gulf Coast, according to the EIA. The rail industry in Canada has required crude oil producers there to sign long-term agreements to transport crude oil by rail. But the producers have been reluctant to agree to long-term contracts because pipeline capacity could increase in the short to medium term and restrictions could be reduced on existing pipeline capacity.

In 2017, crude oil production in Canada rose by about 300,000 barrels per day to 3.9 million barrels per day, from 2016. By late 2017 and early 2018, the price of Western Canada Select (WCS) crude oil in Hardisty, Alberta, was about $25 a barrel lower than West Texas Intermediate (WTI) crude oil in Cushing, Okla. Before late 2017, WCS was $10 to $15 a barrel less than WTI.

In April, the price difference narrowed to $16 per barrel, and this might suggest demand has fallen for transporting Canadian crude oil by rail. Low WCS prices might have led some oil producers in Canada to reduce production and complete planned maintenance ahead of schedule, reducing the need for rail exports.

In 2017, the United States imported 144,000 barrels per day of crude oil by rail from Canada. Nearly half went to the U.S. Gulf Coast, a region that includes states such as Arkansas, Louisiana and Texas, according to the EIA. The imports accounted for 18% of all crude oil imports from Canada to the Gulf Coast and 2% of the 3.1 million barrels per day of crude oil imported by the Gulf Coast in 2017.

In January 2018, the Gulf Coast imported more crude oil from Canada (448,000 barrels per day) than from Venezuela (438,000 barrels per day) for the first time, and in September 2017, the region imported more crude oil from Canada (379,000 barrels per day) than from Mexico (309,000 barrels per day).