Monthly Review Of CBR Data -- April 14, 2015

Active rigs:

	4/14/2015	04/14/2014	04/14/2013	04/14/2012	04/14/2011
Active Rigs	91	188	186	206	174

RBN Energy: monthly review of CBR data.

Data from the new Energy Information Administration (EIA) monthly report on crude-by-rail (CBR) shows that shipments from Canada increased from less than 10 Mb/d two years ago in January 2012 to over 130 Mb/d in January 2015. The increase in CBR movements mirrors increasing Canadian crude exports to the U.S. – the majority of which are still pipeline movements. Today we look at the destination markets for Canadian CBR in the light of congested pipeline capacity out of Western Canada.

In Episode 1 of this series we introduced new EIA monthly data on CBR movements in the U.S. and Canada. The data derives from carload rail movements captured by the Surface Transportation Board (STB) and various estimates of Bbl per carload. The EIA report is updated monthly with recent months being estimates based on historical correlations. We found that the growth in U.S. CBR shipments (up from 20 Mb/d in January 2010 to just under 1 MMb/d in December 2014) closely tracked expanding U.S. crude production (up 71%) over the past four years. CBR has proven to be a flexible solution for producers waiting on pipeline infrastructure. But while the volume of CBR movements increased, favored origins and destinations changed considerably over that time period.

Our analysis showed that increasing volumes of crude moved by rail out of the Midwest (mainly from North Dakota) were destined for the East and West Coasts –routes that have no competition from pipelines and where refiners have invested in unloading infrastructure meaning they are more committed to rail. We noted that volumes shipped to the Gulf Coast from North Dakota fell off after crude price differentials between the inland market represented by West Texas Intermediate (WTI) crude at Cushing and the coastal market represented by Brent crude, narrowed. In situations where CBR competes directly with pipelines the higher cost of rail is a disadvantage, unless pipeline congestion increases crude price differentials enough to justify higher rail freight costs. This time we look at the growth of rail movements out of Canada.

In summary, the EIA data provides additional insight into CBR deliveries to the U.S. from Canada – suggesting that in spite of a continued build out of rail loading capacity in Western Canada and congestion on pipelines out of Alberta, rail movements are still only expanding slowly. CBR shipments to the Gulf Coast (including the Midwest) still only match those to the smaller East Coast refining market. The West Coast also remains a minor market for Canadian CBR. All indications are that unless Canadian pipeline projects progress through permitting more rapidly than expected, CBR movements should see still more expansion in the next year.

****************************

EIA Forecasts End Of Boom

Bloomberg is reporting:

Output from the prolific tight-rock formations such as North Dakota’s Bakken shale will decline 57,000 barrels a day in May, the Energy Information Administration said Monday. It’s the first time the agency has forecast a drop in output since it began issuing a monthly drilling productivity report in 2013.

Deutsche Bank AG, Goldman Sachs Group Inc. and IHS Inc. have projected that U.S. oil production growth will end, at least temporarily, with futures near a six-year low. The plunge in prices has already forced half the country’s drilling rigs offline and wiped out thousands of jobs. The retreat in America’s oil boom is necessary to correct a supply glut and rebalance global oil markets, according to Goldman.

“U.S. production can return quickly with any price recovery,” Adam Longson, an analyst at Morgan Stanley in New York, said in an April 13 research note. “A backlog of uncompleted wells, falling service costs, hedging opportunities and plenty of capital on the sidelines should all support investment, perhaps more than the market expects.”

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., is expected to fall 33,000 barrels a day in May to 1.69 million. Production in the Bakken region of North Dakota will decline 23,000 to 1.3 million, the EIA said.

Yield from the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will continue to rise, by 11,000 barrels a day to 1.99 million.

I could be wrong but I believe production from North Dakota decreased month-over-month in the most recent Director's Cut (data from January, 2015). 

Data for February in the April, 2015, Director's Cut could be released as early as today but will certainly be released by the end of this week.

******************************

Affordable Care Act

As predicted, ObamaCare has been a boon to the heath care industry in general, and the pharmaceutical industry in particular. Isn't inflation running close to zero percent? Not for the pharmaceutical companies. Everywhere one can find stories reporting the same "news": US prescription drug spending jumped to $374B in 2014.

Disclaimer: this is not an investment site. Do not make any investment or financial decisions based on what you read here or what you think you may have read here.

Back in March, 2015, I talked about the incredible opportunities for young investors with the passage of ObamaCare. This is not rocket science.