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John Murphy
Are Trains the Big Winner in the Oil Boom?
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There are many reasons why legendary investor Warren Buffett favors railroads.

But greater oil production has never listed as one of those factors.

But train stocks such as CSX (NYSE: CSX), Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC) have all done very well due to greater fuel production in the United States. This is especially so for the Bakken Shale in North Dakota.  There are only a couple of ways that oil products can get to market from oil fields, which are generally in rural area.

By railroad is, by far, the most cost effective.

Pipelines take a great deal of time to build.  There is opposition from environmental groups pretty much every step of the way.  Moreover, there is not nearly enough in the way of pipelines in the United States to haul more crude oil.

Truck traffic is too expensive.

Carrying goods by truck is not nearly as cost effective as using trains.  There is not enough scale-of-economy to get the costs down to compete with railroads.  In addition, trucks must use highways, which would drive up political opposition and operating costs.  Travel on interstates does not flow as smoothly, either.

Which leaves train traffic as the superior way to haul more oil.

This is shown in the far superior stock performance of railroad stocks.  CSX is up for the last month, quarter, six months, and year of market action.  For 2014, CSX has risen by more than 32 percent (chart below).  Union Pacific, Norfolk Southern, and other railroad stocks have also done well.

North America is now the largest energy region in the world.

More oil will be pumped from fields in the United States.  That means there will be more cargo for trains to carry.  Look for the stock prices of Union Pacific, CSX, Norfolk Southern, and others to continue the ride higher!




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