UPDATE: U.S. Oil Refinery Strikes

Negotiations have resumed between Shell and union leaders

Negotiations resumed today between Royal Dutch Shell and union leaders as they work to solidify a new contract for workers at 72 oil refineries around the United States. Starting Sunday, the United Steelworkers Union (USW) sent workers at nine refineries on strike after negotiations with the industry broke down.

USW’s strike is the first at a U.S. refinery since 1980. While the number of refineries is relatively small, the nine refineries represent about 10% of total U.S. production capacity. Most affected refineries are running near normal rates, with operators having called on trained managers, retirees and others from non-union plants to replace workers, reports Reuters.

The union is seeking annual pay increases of 6%, double the size of those in the last agreement. The pay increases have been a major sticking point in negotiations, with Shell saying that low prices have eroded profits, prompting company executives to say they cannot afford to lift wages for workers. USW also wants work that has been given in the past to non-union contractors to start going to USW members, in addition to a tighter policy to prevent workplace fatigue and reductions in members’ out-of-pocket payments for healthcare.

The union said further walkouts may be ordered at some of the other 63 refineries and chemical plants if advances are not made. Fewer than 4,000 workers are currently on strike.

United Steelworkers Union calls a strike, but what will the effects be?

The United Steelworkers Union (USW) announced Sunday that it instructed workers at nine oil refineries in the United States to go on strike. The announcement came after the union rejected the fifth proposed offer in the most recent round of bargaining. The USW represents employees at more than 200 U.S. refineries, terminals, pipelines and chemical plants. According to the union, the decision to go on strike was made because the industry representatives did not address the union’s concerns about “onerous overtime; unsafe staffing levels [and] dangerous working conditions.”

The nine refineries represent approximately 1.82 MMBOPD of combined production, or about 10% of total U.S. capacity, according to data compiled by Bloomberg. The strike is the largest at U.S. refineries since 1980.

Refineries affected by the movement include facilities owned by Royal Dutch Shell (ticker: RDSA), LyondellBasell Industries (ticker: LYB), Tesoro (ticker: TSO) and Marathon Petroleum Corp. (ticker: MPC). A company spokesman for Shell said its Deer Park plants would continue operating under a strike contingency plan and the company is committed to reaching an agreement, reports The Wall Street Journal.

Possible outcomes for prices

Analysts have a wide range of opinions on what this strike could mean for the price of oil. Michael Hewson, senior market analyst at London-based CMC Markets Plc, believes pressure would remain on the downside for prices. “Suppliers are not going to stop producing just because of refinery strikes. As soon as refineries get full there is nowhere else for it to go so it’s like a dam,” he told Bloomberg by phone.

Roger Read, Wells Fargo Equity Research Senior Analyst, held a more neutral view on the potential effects of the strike. “We do not expect any immediate impacts on operations or to investors from the unionized labor strike,” he said. “Refineries are highly automated operations that should be able to run with minimal disruption in the initial days and weeks.” Read went on to warn that the strike could have more of an effect if it continues, however, as more manpower is required for maintenance from late February to early May.

Others believe this strike could mean a return to higher prices. “You can forget about $2 gasoline,” Carl Larry, director of oil and gas at consulting firm Frost & Sullivan, said. “It’s going to be a big deal. People are going to be freaked out,” reports FOX News.

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