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Railroads Feel Pinch from Oil Prices

North American railroad companies have faced accelerating slowdowns, with volumes falling faster than executives had predicted, according to report on Bloomburg Business. With energy companies scaling back drilling after prices for the commodity fell about 50 percent since July, industry executives and analysts anticipated that demand for hauling crude and extraction materials such as frac sand and pipes would slow after a four-year surge.

It has more than slowed.

“The impact is occurring more quickly than the rails originally projected to investors,” said Matt Troy, an analyst with Nomura Securities International Inc. in New York. “The consensus view was that very high double-digit growth would moderate to low double digits, and as we have seen in recent weeks we’ve broken that floor and in some cases gone negative.”

Rail stocks and tank-car leasing are reflecting the dwindling traffic. The Standard & Poor’s 500 Railroads Index posted its biggest weekly decline since October and lessors’ rates for oil cars have fallen by about a third in the last six months, Cowen & Co.

As recently as January, companies including CSX Corp. and Canadian Pacific Railway Ltd., were forecasting that even with prices below $50 a barrel, oil projects already under way would buoy production and keep trains hauling even more crude than last year. Instead carloads of U.S. petroleum products fell 2.8 percent in the last four weeks after growing 13 percent last year.