Commentary: Narrow Western Canada Select (WCS) and Western Texas Intermediate (WTI) spread pressures tank car lease rates
It’s not profitable to ship crude oil by rail. The main driver of crude-by-rail shipments is the price difference between Canada’s benchmark Western Canada Select and Western Texas Intermediate, a U.S. benchmark. When the discount is wide, crude producers line up unit trains and load ‘em out. When the spread is narrow, rail traffic dwindles. Short-term (one-year) DOT-117J lease rates see price swings in reaction to the spread. The 28,500-gallon DOT-117J tank car is a standard car used to ship crude oil. One rule of thumb is that when the discount is narrower than $17/bbl., CBR economics become so unfavorable that spot shipments dry up.
Contributor: PLG Sr. Consultant, 30-year veteran business journalist and founder of analytics firm that tracks rail car leasing rates, Clifton Linton.