One of the reasons given for the recent fall in futures oil prices was that a deal would be reached between the United Steelworkers Union and refineries. However, the slow progress led to speculation of a possible refinery strike which would in turn affect the US’s capacity to convert oil into gasoline, diesel and other products. This led to higher pump prices over the past week. A union spokesperson said that during negotiations both sides had agreed to roll the old contract forward a further 24 hours each day so long as progress was maintained. This helped push light, sweet crude for March delivery down by $1.60 to $40.08 a barrel on NYMEX. Further bad economic news also promoted traders to sell on the assumption that a deeper recession would depress the demand for oil.
Oil futures are stuck between $38 and $48 despite cuts in productions. Oil producers are desperate to halt the slide in prices which have fallen from their peak of $147 in July 2008. A major sticking point between refiners and the Steelworkers union concerns health care benefits and health and safety issues. The Union is negotiating on behalf of 24,000 workers across the US who have confirmed they would be willing to walk out should the negotiations reach stalemate.
There is no consensus amongst energy experts as to whether the workers would strike. John Kilduff VP of risk management at MF Global has said: “Hopefully, cool heads will prevail, but it’s not looking to me”. In the event of a strike he would expect pump prices to jump 10 to 15 cents a gallon. Meanwhile, Tom Kloza, chief oil analyst for the Oil Price Information Service said that in 30 years he could only ever remember one refinery shutdown as a result of failed labour talks. In the new political climate in the US futures oil traders need to be aware of the importance and influence of the Unions who now feel this is their opportunity to regain some of the ground lost under the previous administration.
