Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

China Year of the Snake… U.S. Year of the Tank Car

Companies / Sector Analysis Feb 13, 2013 - 08:45 AM GMT

By: Investment_U


David Fessler writes: In China, 2013 is the Year of the Snake. According to the website, this means that 2013 should be a year of steady progress and attention to detail. Focus and discipline will be necessary in order to achieve goals.

In the U.S., 2013 might well be called the Year of the Tanker Car, particularly if you are an oil producer in the Bakken or the Eagle Ford shale formations.

If you happen to live near a major rail line in Texas or the Dakotas, you’ve probably seen a train like the one below. It’s what’s known as a “unit train”. A unit train transports a single product or unit.

Photo courtesy of Dakota Plains Holdings, Inc.
In this case, the Canadian Pacific Railway engines are pulling tanker cars full of crude oil. They were loaded at the Dakota Plains Holdings, Inc. (NASDAQ:DAKP) transloading facility in New Town, North Dakota.

New Town just happens to be in the heart of the Williston Basin, also called the Bakken shale oil field. But the engines (if it wasn’t for the snow) could just as easily be Union Pacific Corporation’s (NYSE:UNP). The tanker cars could also just as easily be from a transloading facility in Texas’ Eagle Ford shale oil field.

Regardless, you can expect to see more unit trains like this one… a lot more. Crude oil from U.S. shale deposits is being pumped out of the ground in ever-increasing volumes. It has now outstripped the ability of existing pipelines to carry it.

Historically, 90% of crude oil shipments have been transported around the U.S. via pipelines. In the case of the Bakken, there are few existing pipelines. A number of new ones are in the planning stages, but they can take years to build.

East and Gulf coast refineries would love to get their hands on the inexpensive West Texas Intermediate (WTI) crude. They’re currently forced to pay the higher prices for the internationally priced Brent. It can sell for as much as $25 per barrel more than WTI.

That big differential between Brent and WTI has made crude transportation via rail very attractive. Right now, the only economically viable way to get this surplus crude from fields to refineries on the East and Gulf coasts is by rail.

Crude oil trains have been increasing in number since the BNSF Railway pulled the first one from EOG Resources, Inc.’s (NYSE:EOG) Stanley, North Dakota Terminal.

As you can see from the graph below, courtesy of the Energy Information Administration (EIA), tanker car shipments have dramatically increased in just the last year.

2012 saw a record increase in crude oil production, and a marked decrease in coal use. This is reflected in the movement of these two commodities by rail. Crude oil and related products were responsible for the largest increase in commodity rail car loadings in 2012.

Not surprisingly, coal had the largest decline. This was due to increased use of natural gas for power generation. However, coal is still king of carload shipments. It accounted for 41% of all carloads. This compares to 4% for all petroleum products combined.

It’s the growth of petroleum that’s absolutely stunning. In 2009, crude oil and related products made up just 3% of all carloads in the oil and petroleum products class. In 2012, that number jumped to 38%. The Association of American Railroads reported that nearly 171,000 carloads of crude were moved by rail in 2012.

Playing the Rail-Crude Connection
There are several ways for investors to play the oversupply of WTI crude. The most obvious would be an investment in one of the major rail carriers serving the Bakken or the Eagle Ford shale oil fields. But rail stocks carry a wide range of commodities.

Most major railroads haul coal. Many will be hard pressed to offset the drop in coal shipments as natural gas is the fuel of choice for new power plants.

A more subtle way to play the increase in crude shipments by rail is by investing in tank car manufacturers. Right now, there is a backlog of 40,000 tank cars on order from the top three manufacturers. If you order a tank car today, you’ll wait 18 months to take delivery.

The Union Tank Car Company is a privately held subsidiary of Marmon Holdings. Marmon is owned by Berkshire Hathaway Inc. (NYSE:BRK.A), Warren Buffet’s empire. Union is working flat out to meet its tank car order commitments.

A better way to play
the tank car boom would be to invest in a few shares of Trinity Industries, Inc. (NYSE: TRN). It sells a wide range of products, including wind towers, tanks and rail cars. One of its divisions also operates a barge leasing business.

Trinity’s rail car business is doing extremely well. So well, in fact, that it’s currently in the process of converting several wind tower manufacturing plants into rail tank car manufacturing facilities.

But the best tank car manufacturing play of all is going through the roof. Its manufacturing capacity is sold out through the end of 2014. This company’s stock is up 38% in a little over five months.

They’ll be announcing earnings in the next several weeks. I expect them to exceed analysts’ estimates for the coming quarter and likely for the rest of this year and next. Out of respect for my existing subscribers, I can’t give you the name of this company.

My Peak Energy Strategist newsletter contains the name of this tank car manufacturing powerhouse, along with a number of other great energy companies I follow in my Peak Energy Portfolio.

Right now, 14 of my 15 stocks are showing positive gains with 10 posting double-digit gains.

Click here to learn more about my Peak Energy Strategist newsletter and the name of this tank car manufacturer that could easily double in the next 12 – 18 months.

Good Investing,

by, Investment U Senior Analyst

Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History