TransCanada Corporation (USA) (TRP): The Oil-By-Rail Explosion Continues

Warren Buffett’s company also sees big things from its oil-by-rail business; it, too, expects to double its oil shipments. Burlington has a 40% market share when it comes to hauling petroleum products by rail, which is double its top competitor’s and well above the 12% market share of Canadian Pacific Railway Limited (USA) (NYSE:CP). Burlington as a whole was just 12% of Berkshire’s overall first-quarter revenue; furthermore, while petroleum product volumes rose by 14% in the quarter, it’s hardly budged overall rail volumes, which were up just 3%. So the risk that oil shipments may diminish won’t derail the insurance giant.

The key takeaway for investors is that moving oil by rail doesn’t appear to be showing any real signs of slowing down; however, the risks are increasing that it could. The disaster in Canada could cause increased regulatory costs or encourage a faster approval process for pipelines. In addition, U.S.-priced oil isn’t selling at the massive discount to worldwide benchmarked oil. In fact, the discount has been squeezed by about $20 in the past year, taking away many of rail’s cost savings. That could halt the growth of oil shipped by rails because it’s a much more expensive method when compared to pipelines. In my opinion, that means there are more downside risks to investors, which is why it might be better to look to profit elsewhere.

The article The Oil-By-Rail Explosion Continues originally appeared on Fool.com.

Fool contributor Matt DiLallo owns shares of Phillips 66 and has the following options: long January 01 2014 $70 calls on Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway.

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