US crude production pullbacks due to lower pricing are now having a significant effect on inland barge operators like Kirby Corp.
NYSE-listed Kirby has dropped its full-year profit guidance by 6-9%, citing crude production declines. According to company executives, 100-150 barges have already been moved out of the inland crude trade and into the petroleum products and petrochemical markets.
“While inland contract pricing renewals were flat in the first quarter, management noted downward rate pressure began to materialise in the second quarter, which is expected to continue,” said Wells Fargo analyst Michael Webber in a research note.
According to Cowen analyst Sam Margolin, “The downturn in rates signals a potential future decline in inland barge utilisation below the 90% level that typically provides rate support.” Margolin foresees a “sustained negative impact” from America’s “crude production plateau”.
According to Evercore ISI analyst Jon Chappell, the magnitude of Kirby’s profit forecast revision “was a bit surprising”. However, Chappell believes the situation could turn around quickly.
“With utilisation remaining above 90% for the inland barge fleet, despite equipment slated for crude oil transport shifting into other markets, it sounds like any stabilisation in the oil price could quickly and meaningfully move [barge] pricing back into a favourable direction.”