John Whitefoot: Back in early October, I mentioned that some railroad stocks would be some of the biggest winners of the Bakken oil play in North Dakota and Montana and the tar sands in Alberta. My position still holds true today.
Since last discussing pipeline and railroad stocks, Canadian National Railway Company (NYSE:CNI) has seen its share price climb more than 10%. Meanwhile, Canadian Pacific Railway Limited (NYSE:CP) is up more than 15% and Union Pacific Corporation (NYSE:UNP) has increased 14%.
Of the oil and gas pipeline stocks I mentioned, Magellan Midstream Partners L.P. (NYSE:MMP) is up more than 15%, while Energy Transfer Equity, L.P. (NYSE:ETE) has soared almost 26%.
While a new pipeline was recently completed in the Bakken oil fields in North Dakota, thanks to a dithering President Obama, North American oil production continues to outpace oil pipeline capacity. That’s a boon for both oil pipeline stocks and railroad stocks.
After dragging his heels for five years, President Obama has still yet to render a decision on the Keystone XL pipeline that would connect Canada to Texas. Obama’s delay is nothing but good news for railroad stocks. Unlike a pipeline, the joy of sending oil and gas by railroad is that it requires no approval by the U.S. Department of State.
Regardless of what President Obama decides, oil and gas will continue to flow south, whether it’s through existing pipelines or by railroad stocks. And increasingly, it’s being sent by rail.
For the week ended January 18, U.S. railroad traffic increased 4.5% year-over-year. Petroleum and petroleum product carloads increased 13.3% year-over-year. In Canada, shipments of Canadian crude oil by railroad stocks have reached 175,000 barrels per day, compared to less than 24,000 barrels per day at the start of 2012. (Source: “AAR Reports Increased Weekly Rail Traffic,” Association of American Railroads web site, January 23, 2014.)