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A two-mile Canadian Pacific train loaded with oil tank cars idles on a track in Enderlin, North Dakota. Oil shippers have been moving away from rail carriers to the cheaper pipeline method.

Ernest Scheyder/Reuters

Canadian Pacific Railway Ltd. became the latest rail carrier to signal it is feeling the pinch of the plunge in oil prices.

Keith Creel, CP's chief operating officer, said at an investors' conference in New York that the company's previously issued forecast for a 27-per-cent increase in crude carloads to 140,000 was a "question mark."

"The world has changed around us," said Mr. Creel, referring to the drop in oil prices that has energy companies slashing budgets, staff and drilling. "Let me tell you what's not hot. Crude's not."

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Crude by rail has been a source of strong growth for North American railways, growing from almost nothing to account for about 8 per cent of their respective revenues in a few years amid rising production and a lack of pipeline capacity. But volumes moving by rail have fallen as producers move their diminished output away from the more expensive rail option.

Based on first-quarter oil volumes, CP is on pace to move just 88,000 carloads this year, or 37 per cent behind guidance, said Walter Spracklin, an analyst at the Royal Bank of Canada.

Mr. Creel said oil volumes expected from a new crude-by-rail terminal in Edmonton owned by Exxon Mobil and Kinder Morgan have not materialized. The oil is instead moving by pipeline, a cheaper method preferred by shippers amid low prices. Mr. Creel said the company expects to see more oil from the terminal in fourth quarter. A second major terminal near Kerrobert, Sask., has also delayed some volumes, he said.

He said the company is offering discounts on some oil contracts, but is not changing its guidance at this time. Revenue per ton mile, a key measure used by rail carriers, is down 4 per cent this quarter across all lines of business, but Canadian grain and potash revenue are strong, Mr. Creel said.

Fadi Chamoun, a Bank of Montreal equities analyst, said in a research note that Exxon's decision to shift to pipelines is affecting outlooks at CP and Canadian National Railway Co., in addition to Kansas City Southern.

Since the beginning of March, CP's share price has fallen by 10 per cent and CN's is down by 15 per cent.

"We sense that improved accessibility to pipelines and a narrowing of pricing spreads to the low- to mid-single-digit range are pressuring crude by rail volumes in Western Canada," Mr. Chamoun said.

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