A looming labor dispute involving Canada’s two major railroads is not expected to significantly impact oil exports to the United States, thanks to excess capacity on pipelines such as Trans Mountain. Industry insiders indicate that the potential for simultaneous stoppages at Canadian National Railway and Canadian Pacific Kansas City could result in substantial economic losses, but oil exports may remain largely unaffected.
Recent data from the U.S. Energy Information Administration shows that U.S. rail imports of Canadian crude have dropped sharply, averaging only about 55,000 barrels per day in May—the lowest level since the pandemic price crash in 2020. In contrast, the U.S. imports approximately 4.2 million bpd from Canada, predominantly via pipeline.
Elliot Apland of MarbleRock Advisors noted that companies currently receiving crude by rail are exploring alternatives, including substitutable grades that can be transported via pipeline. With the recent expansion of Trans Mountain, which nearly tripled the flow of crude from Alberta to the Pacific coast to 890,000 bpd, the need for rail transport has diminished.
Despite potential disruptions, the prices for Western Canadian Select crude typically decline during export bottlenecks. However, the expanded pipeline capacity should mitigate extreme price drops. As of now, the discount for WCS is $12.25 per barrel below U.S. West Texas Intermediate crude, a smaller gap than the average $18.65 discount seen throughout 2023.
With maintenance at U.S. Midwest refineries freeing up additional pipeline space, industry experts believe that the overall impact of a rail strike or lockout will be manageable. Companies like Cenovus Energy and ConocoPhillips are actively preparing contingency plans to address any disruptions, indicating confidence in their ability to navigate the situation.