"Ominous" Buffett Letter Expected

[Gilbert B Norman]

The Wall Street Journal is reporting today that Warren Buffett's annual letter to Berkshire shareholders will contain "ominous" thoughts regarding the outlook for BNSF:

http://www.wsj.com/articles/why-oil-pri ... 1456445066" onclick="window.open(this.href);return false;

Fair Use:

Cheaper oil is a bright spot for many of Berkshire’s manufacturing and industrial businesses. But it is a growing problem for key holdings including BNSF Railway Co., which makes a lot of money hauling oil and other commodities and accounted for about a fifth of Berkshire’s profit in 2014....... One of North America’s biggest freight carriers, BNSF transports products including coal, grain, crude oil, metals and waste, as well as sand and gravel used by shale drillers. With oil futures now trading around $33 a barrel in New York, down 70% from mid-2014, and other commodities also suffering, growth in shipments has stalled. Drilling activity has fallen off in major U.S. shale-gas producing regions, and coal producers are hurting, because cheap natural gas has utilities switching fuels. BNSF is able to offset these effects partially because it too benefits from lower fuel expenses.....Analysts say these trends, which are hurting all major railroads, will continue to squeeze BNSF’s revenue. Barclays PLC analyst Jay Gelb said he expects the slowdown in rail traffic to weigh on BNSF and Berkshire going into next year.....As of Dec. 26, BNSF’s carload volume was down more than 5% for the fourth quarter to date and flat for all of 2015, according to data from the railroad. Last month, BNSF said it would cut capital spending for the first time in several years. It expects to spend $4.3 billion this year, mostly on maintaining its tracks and network, down from $5.8 billion in 2015.....That’s a shift from recent years, when BNSF spent heavily on improving its infrastructure. In 2014, customers and regulators had complained of poor service as BNSF struggled to cope with a harsh winter and meet increased demand from grain farmers and oil.

How often did I express fears over at General Class I Discussion that some Sheik of Araby would deliberately disrupt the world markets for oil with a price action? It could be said that US interests are furthered in that Russian ambitions of greater dominance have been slowed down, but closer to home consider the effects upon employment with good paying jobs for those with strong backs and little education.

And of course, as outlined within the article, the effects upon BNSF, which I think is the largest oil-hauler of the Class I's.

[Backshophoss]

If anything the"Middle East Oil Gang"(both OPEC and non-OPEC)are losing money as well,there seems to be a sense that the
"oil flood" needs to slow down if not stopped for now. They finally understand US oil fracking is in for the long haul as are
the Canadian oil sands operations.

[Gilbert B Norman]

Here is the 2015, and prior years, letter from Warren:

http://www.berkshirehathaway.com/letters/letters.html" onclick="window.open(this.href);return false;

There is a fair amount of comments regarding BNSF within such.

[YamaOfParadise]

More about the condition of oil itself, a wildcard right now in the global oil market right now is Iran; no one, be it Russia, the U.S, or even other OPEC members really has any idea what's going to happen in Iran. But, it does look like OPEC sans-Iran is going to be cutting production soon; maybe Iran will comply, maybe they won't, maybe they'll get an exemption from OPEC's cuts since they're recovering from sanctions.

U.S. Shale producers (except the bottom third of them which are bankrupt), is in it for the long-haul thanks to some technology and other efficiency breakthroughs. So maybe not quite as ominous; they (and the railroads) have weathered so far, and it looks like we're at the low point of this current drop in oil. Just a lot of uncertainty left, as is inherent to the markets.

[Gilbert B Norman]

Mr. Yama et al, here is additional discussion regarding oil and the railroad industry as a whole:

viewtopic.php?f=177&t=154145" onclick="window.open(this.href);return false;

Regarding OPEC production, I too would like to think that the Iranians "ain't dumb". Their supply is finite, and I think they have somewhat less than do the Saudis, Iraq, and Libya.

So far as "Vladimir the Great" goes, his economy is contracting to such extent that "the oligarchs" might start to take a "second look" and decide "it's time he go". He's not about to get "taken out" in a sewer pipe (think Qaddafi), and if "they" decide he must go, he will spend his exile somewhere "with all the comforts".