NEW YORK (Reuters) – US crude oil shipments by railroad could help to end gaping price distortions in world oil markets faster than most traders have been expecting. Rail shipments of crude from the landlocked and oversupplied Midwest to refiners in the Gulf Coast appear set to surge next year, to nearly double the volume now flowing in congested pipelines between the regions. The shipments have already grown to around 100,000 barrels per day (bpd) in recent months, industry sources told Reuters. Two rail terminals in St. James, Louisiana are receiving much of the crude, while other Gulf Coast sites including Houston are taking additional crude. The daily cargoes between the Midwest (PADD 2) and the Gulf Coast (PADD 3) could triple to 300,000 bpd by late 2012, industry sources said. Logistics firms unveiled plans for several new crude-by-rail terminals over the last four months. Such traffic between the regions was rare until recently. Since the Department of Energy does not track crude-by-rail, there's no official data on how much is moving. But logistics firms say volumes are growing fast, a trend that could slash discounts of nearly $23 a barrel on US oil futures relative to oil in the Gulf Coast or Europe. Delays in southbound pipeline construction and insufficient existing capacity have resulted in midwestern crude gluts, the main reason cited by oil traders for the unusual discounts. Railroads are emerging as a viable option for inland oil producers to get crude to coastal areas and maximize profits. ''We're maxed out right now,'' said Bill Swann of US Development Corp., referring to his crude-by-rail terminal at St. James that receives around 65,000 barrels per day, mostly from the booming Bakken Shale oilfield in North Dakota. ''We think significant volumes of crude will move by rail for years to come, so we're building multiple origins and destinations.'' The Texas-based firm is doubling the size of its St. James terminal to receive 130,000 bpd of crude starting in October. US Development said in June it planned to build five additional crude-by-rail terminals by 2013. One on the Texas Gulf Coast could receive Canadian crude, Swann said, while two others could be built on the East and West Coasts. In futures markets, discounts of at least $18 a barrel on West Texas Intermediate crude at Cushing persist through the end of 2012, as traders bet on pipeline bottlenecks to perpetuate a supply glut there. Railroads could allow growing oil supply from Canada's oil sands and North Dakota to bypass the Midwest. ''While the market frets over what pipeline will be first to bring oil out of the Midwest and into the Gulf Coast, railways are already filling the gap,'' JP Morgan oil analysts wrote in a note to clients on Friday.

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