[Ferretlover]

Oil Workers in U.S. on First Large-Scale Strike Since 1980

Here we go again!

Any comments on how this will end?

[kublikhan]

The USW asked employers for “substantial” pay increases

Isn't this a bad time to be asking for a raise in the oil patch?

Oil boomtown: 'We could see 20,000 layoffs by June'

[dinopello]

The USW asked employers for “substantial” pay increases

Isn't this a bad time to be asking for a raise in the oil patch?

Oil boomtown: 'We could see 20,000 layoffs by June'

That was my first reaction but this from the article

The United Steelworkers union, which represents employees at more than 200 U.S. oil refineries, terminals, pipelines and chemical plants, began a strike at nine sites on Sunday, the biggest walkout called since 1980.

Those workers represented seem to be on the consumer side mostly. Oil is cheap, and oil resource owners, extractors and service companies are in pain, but would this mean that raw materials to refiners and chemical plants are lower and the lag in pricing could produce higher profits for the consumers/transformers of oil ? I was wondering about this the other day.

[kublikhan]

You're probably right.

While consumers may rejoice at gasoline prices dropping, one sector of the oil and gas industry is also seeing the benefits of low oil prices. Thanks to the oil glut in the U.S., demand for refining has grown massively, with many refineries running at over 90% capacity thanks to oil reaching prices not seen for five years. US refining capacity has reached approximately 17.8m b/d, an increase of 400,000 b/d from two years before.

In addition to the benefits of cheap oil, many refineries are located strategically near export terminals which facilitate the cheaper export of refined petroleum products. The continuation of the long-standing ban on U.S. crude exports, while bad news for U.S. shale producers, is good news for refiners especially those located near key US shale plays. One such company, Valero, is adding refining units.

Low Oil Prices Lead To U.S. Refining Boom

[Subjectivist]

As a former member of the USW I can let you in on a reality of contract negotiations. The companies are trying to use current low prices to lock in small raises or even pay reductions for several years into the future. My last employer tried that stunt and we finally settled on a one year contract extension to get past the economic rough spot and negotiated a regular contract after things had marginally improved. If we had accepted the contract they offered we would have had no raises for three years and have lost our healthcare contract with BCBS and had it replaced with some cut rate high deductible company instead.

[ROCKMAN]

"...with many refineries running at over 90% capacity thanks to oil reaching prices not seen for five years.". Yes...refineries running at high capacity. It's difficult to not make this sound patronizing but I don't know how to avoid asking the obvious: how do refineries generate cash flow and profits? Simple answer: selling refined products, principally motor fuels in the US. And that revenue is generated by selling X gallons at $Y/gallon. And how has $Y changed recently? In the last 7 months gasoline prices have fallen 44% and diesel has dropped almost 30%.

So lets look at how much this increased refining has helped the industry cash flow. From last July to the latest number US gasoline sales have increased from 20 million gal/day to 27 million gal/day. And sales revenue? It has DECREASED about $30 million per day. IOW revenue from gasoline sales has DECREASED by about $10 BILLION PER YEAR.

So the union thinks their members should get an INCREASE in their personal cash flow at a time when their employers have suffered a significant decrease in cash flow??? IMHO the union members should thank Dog for the increase in consumption. This has allowed the refineries to run at a higher capacity. If consumption hadn't increased a lot of those workers wouldn't see a bump in their salaries: they would be seeing a 100% decrease in their paychecks as they were laid off.

It seems a little ass backwards IMHO: the time to push for salary increases was when the refineries were generating record cash flows. Not now when they've just taken a huge hit.

[dinopello]

"...with many refineries running at over 90% capacity thanks to oil reaching prices not seen for five years.". Yes...refineries running at high capacity. It's difficult to not make this sound patronizing but I don't know how to avoid asking the obvious: how do refineries generate cash flow and profits? Simple answer: selling refined products, principally motor fuels in the US. And that revenue is generated by selling X gallons at $Y/gallon. And how has $Y changed recently? In the last 7 months gasoline prices have fallen 44% and diesel has dropped almost 30%.

That's not the whole picture. Unless refining is unlike every other business, then the cost of materials into what you make is a big factor. Yes, the product they sell has decreased in price but by what percentage compared to the cost of raw material? I don't know, I'm asking. Another way to look at it is what has happened to a refiner's stock like Valero versus a drillers stock (pick one but Apache is one I follow). On has gone up (refiners) and one has plummeted (oil co) - so someone thinks the profits look pretty good in the refining business.

Refiners adjust their prices pretty fast it seems. I'm more familiar with the restaurant industry. When the cost of raw food goes up they take a pretty big hit because they don't adjust their menu prices immediately in response. If anything they stop carrying a product (like when beets went up, my favorite BBQ place just took grilled beet salad off their sides). Likewise when food prices fall they get a little windfall.

[Dybbuk]

I saw USW guys demonstrating just a block from where I live yesterday. Didn't know what it was all about at the time; I do now.

[ROCKMAN]

dino - True. The useful number you're alluding to is the "crack spread":

A crack spread measures the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline and distillate fuel, that a refinery produces from the crude oil. Crack spreads are an indicator of the short-term profit margin of oil refineries because they compare the cost of the crude oil inputs to the wholesale, or spot, prices of the outputs (although they do not include other variable costs or any fixed costs). The 3:2:1 crack spread approximates the product yield at a typical U.S. refinery: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillate fuel.

To calculate the 3:2:1 crack spread for a Gulf Coast refinery that processes Louisiana Light Sweet (LLS) crude oil, add the spot price for two barrels of Gulf Coast conventional gasoline to the spot price for one barrel of Gulf Coast ultra-low sulfur diesel. Since prices for petroleum products are typically quoted in dollars per gallon, they must be multiplied by 42 gallons per barrel to convert to dollars per barrel. Then subtract the spot price for three barrels of LLS crude oil. Finally, divide the result by 3 to produce a crack spread in dollars per barrel.

Here's what I could find for the change in the Gulf Coast crack spread since oil prices started to fall. The CS varies from region to region but the GC is THE primary refining area in the US. From Scotia Howard Weil:

1Q14. $10.86/bbl
2Q14. $14.05/bbl
3Q14. $12.11/bbl
4Q14. $6.19/bbl

So not only has cash flow dripped significantly but profit per bbl refined dropped 56% in the last 9 months of 2014. Folks need to understand that the price of the oil feedstock represents only a portion of the cost to produce products. There are a number of fixed costs that don't decrease as oil prices decrease. Such as the chemicals used to process the oil, electricity used to power the process. And salaries, of course.

So given these numbers exactly how would you make your case for a big boost in union salaries? And BTW did you see my post about Sasol mothballing their GTL project in La as well as a major refinery upgrade? Killed about a total of $20 BILLION in capex as well as thousands of new UNION jobs. And the avg salary of the plant operators: $88k/yr. As I pointed out the next highest salary in the area would be the manager at the local Walmart. LOL.

The drop in oil prices is great for consumers. Not so great for the tens of thousands of oil patch hands that will lose their jobs. And pay increases? Most will be seeing reductions...if they are the lucky ones that still have jobs. And not so rosy for s bunch of union workers either:

U.S. Steel has announced plans to lay off 756 workers at steel tube plants near Cleveland and Houston, citing sharply lower oil prices. “This action is a result of a decline in tubular market conditions, which is impacting demand for the plant’s products,” U.S. Steel wrote in a letter addressed to USW president Leo Gerard.

In a notice posted on the union website, Local 1104 president Tom McDermott said, “What appeared just a few short weeks ago as being a productive year … has most abruptly turned sour.” Oil fell below $50 a barrel Tuesday, driving prices to a five-year low. Growing stockpiles have prompted some producers to curb operations. Booming production of U.S. oil and gas has contributed to the oversupply.

Industry analyst Charles Bradford said part of the problem is the massive amount of new tubular mills that have begun production or that are being built. He estimates about 4 million tons of new U.S. capacity has been announced in recent years in a market where consumption is 8 million to 10 million tons per year. The boom was encouraged by the large profit margins that tubular producers were realizing a few years ago, he said. U.S. Steel’s Lorain plant manufactures seamless pipe used in construction and oil and gas exploration and production. The Houston plant processes pipe, tests it and provides other services.

[GoghGoner]

You would think that this will cause a big inventory build on inventories that were already building. Traders have been betting oil prices much higher since Friday so they don't think this strike is going to last very long or they are just reacting in a herd about something...

Looks like Valero has done just fine with lower priced inputs.

Valero Energy profit, sales beat expectations

Valero said its refining segment's throughput volumes averaged 2.8 million barrels a day in the fourth quarter, an increase of 41,000 barrels a day from a year earlier. Operating income in the refining unit grew to $1.9 billion from $1.5 million a year earlier. However, excluding special items, operating income was flat from the year before.

In the ethanol segment, operating income fell 49% to $158 million, due to the impact of lower gasoline and ethanol prices, despite stable corn prices.

[ROCKMAN]

Goner - Looks like the Valero workers are also doing OK...and without the help of the union:

Reuters - Workers at Valero's Texas City, Texas, refinery rejected joining the United Steelworkers union, according to ballots counted Friday, said union and company representatives. Workers voted to reject affiliation with the Steelworkers, which represents 30,000 U.S. refinery workers. "Valero has always had a very good working relationship with our employees, both those who are union represented and those who aren't, and we appreciate the support and commitment shown by the team at Texas City," said Valero spokesman Bill Day in a statement.

[kublikhan]

A strike that began in nine of the nation’s refineries yesterday isn’t likely to have much effect on fuel production at the plants. It will probably hurt refiners even less than the last strike 35 years ago, which also had a negligible impact on operations. In 1980, the last set of major strikes at U.S. oil processing plants, production of gasoline and diesel was not significantly affected.

“Refineries are highly automated operations that should be able to run with minimal disruption in the initial days and weeks. Strikes are not new to the industry and a combination of non-union management and contract workers will be called in to maintain operations.”

“They’re more automated now than in the 1980s. I have every confidence that things will go relatively smoothly. Operators may not push their plants as hard in this environment, but they can keep them running without too much difficulty.”

Refineries to Rely on Automation Amid Strike

[ROCKMAN]

K – And not just using automation to help out. They can also bring in non-union boots on the ground in Texas. I know a fair number of refinery hands and I don’t think any of them are in a union. And they are doing pretty good with compensation because there has always been a strong demand for qualified workers. Texas is a “right to work” state. Here’s a part of the statute itself:

§ 101.003. Right to Bargain: A person's inherent right to work and to bargain freely with the person's employer, individually or collectively, for terms of the person's employment may not be denied or infringed by law or by any organization. (Enacted 1993.)

§ 101.004. Contract for Withholding Union Dues from Employee's Compensation Void Without Employee's Consent: A contract that permits or requires the retention of part of an employee's compensation to pay dues or assessments on the employee's part to a labor union is void unless the employee delivers to the employer the employee's written consent to the retention of those sums. (Enacted 1993.)

§ 101.052. Denial of Employment Based on Labor Union Membership Prohibited: A person may not be denied employment based on membership or nonmembership in a labor union. (Enacted 1993.)

[dinopello]

Strike expands to include largest US refinery and others.

Shortly after talks between union and oil company representatives ended on Friday night, the union notified Motiva Enterprises [MOTIV.UL] of a strike by its members at the company's 600,250 barrel per day (bpd) refinery in Port Arthur, Texas.

The USW also gave notices on Friday of strikes to begin in 24 hours at Motiva's 235,000 bpd Convent, Louisiana and 238,000 bpd Norco, Louisiana refineries and the Shell Oil Co chemical plant in Norco, the union said.

"The industry’s refusal to meaningfully address safety issues through good faith bargaining gave us no other option but to expand our work stoppage," USW International President Leo Gerard said in a statement.

If no agreement is reached between Shell and the USW by early Sunday morning, a total of 6,550 workers at 15 plants, including 12 refineries accounting for 18.5 percent of U.S. production capacity, will be walking picket lines in the largest national refinery strike since 1980.

[ROCKMAN]

Just so folks don't panic at the idea that a lot of refineries have shut down now:

(Reuters) - The walkouts were the first in support of a nationwide pact since 1980 and targeted plants with a combined 10 percent of U.S. refining capacity. One of the plants, Tesoro Corp's 166,000-barrel-per-day Martinez, California, refinery, was being shut because it was in the midst of planned maintenance work. The other refineries appeared set to continue running normally as operators initiated contingency plans. Talks broke down against a backdrop of plunging crude prices, down nearly 60 percent since June, prompting oil companies to cut spending.

The United Steelworkers union (USW) said Royal Dutch Shell, the lead industry negotiator, halted negotiations early Sunday after the union rejected a fifth proposal from the company. Shell said it would like to restart talks. Shell activated a strike contingency plan at its joint venture refinery and chemical plant in Deer Park, Texas, to keep operating normally. Tesoro said management was operating its refinery in Carson, California, and that managers would take over from union workers at its plant in Anacortes, Washington, in the next 24-48 hours.

{And how does the union strike benefit some of the refiners?:}

"Five refiners, including Tesoro Corp., experienced a spike in their stock prices amid word of an extended refinery shutdown on the East Coast, Emerging Markets reported Tuesday. Irving Oil Co.’s refinery in Saint John, New Brunswick will be closed through Nov. 20. The refinery produces more than 300,000 barrels-of-oil per day of refined products and is a major supplier to the Northeast. Emerging Markets reported that Tesoro, Seadrill, Diamond Offshore Drilling, Quicksilver Resources and Noble Corp. saw their stock close higher as news of the refinery shutdown rippled through the financial markets.

Even though certain refiners like Tesoro do not have a refinery presence in the Northeast, commodity prices for products like crude oil and gasoline are driven by supply and demand forces. A consumer group is urging state officials to investigate Tesoro’s decision to close its refinery in Martinez while steelworkers at the plant participate in a national strike. Liza Tucker, a consumer advocate with Consumer Watchdog, said taking the Golden Eagle plant offline will cut California’s crude oil refining capacity by 8 percent, resulting in higher prices at the pump. Consumer Watchdog sent a letter to California Attorney General Kamala Harris and Robert Weisenmiller, chair of the California Energy Commission, citing “suspicious refinery behavior” on the part of Tesoro.

{"Suspicious behavior" by Tesoro? The union called a strike to shut down refineries. In this case they succeeded and some of the refiners "succumbed" to he pressure. What's suspicious about that? LOL}

“This is an inopportune time for Tesoro to be shutting down a refinery,” Tucker wrote. “We ask that you investigate immediately the reasons for this unnecessary decision in order to rule out a concerted refinery effort to drive up the price of gasoline in California.” Tesoro’s Martinez facility is California’s fourth largest oil producing refinery. It employs 650 workers and can process 166,000 barrels of oil a day. “We understand that refineries must get ready to produce California’s special summer blend of gasoline,” Tucker said.” But it makes little sense to shut the plant down entirely right now, in the midst of a national strike the likes of which we haven’t seen in 30 years — unless it is a measure being taken by Tesoro to intentionally affect the price of gasoline.”

The manufacturer of any product has the legal right to limit its output in order to affect prices. That's why Ford Motors doesn't build 5X as many Mustangs. What's illegal for manufacturers to do is to collude with each other in such an effort. But apparently unions do have the right to try to do it on behalf of their bitter rivals...the refinery owners. Is this a great county, or what? LOL.

"Tesoro had already shut down half of the plant for a planned maintenance turnaround before the United Steelworkers union strike began. “Given the USW decision to strike, the safest operating option at this time for Martinez is to safely shut down the remaining process units, which the refinery will be commencing in the next 24 hours,” the company announced earlier this week. Tesoro said it was “extremely disappointed” to have received strike notifications at its Anacortes, Washington refinery, its Martinez refinery and the Carson portion of its Los Angeles refinery."

IOW: "Oh please Mr. Union Fox, don't throw this here Refinery Rabbit into the strike briar patch!" LOL. The strikers still get paid by the union, the non-union workers at the refineries still get their paychecks and the refineries keep operating for the most part while making record profits and the refinery shareholders are getting a little kiss. Looks like the only ones to take hit are the consumers. Oh, thank goodness...BAU. LOL.

[GoghGoner]

This strike has a major effect on gasoline prices.

Tensions flare as picket lines crossed in U.S. refinery strike

Personal friendships are turning sour as some workers cross picket lines in the lingering U.S. refinery strike, with companies pushing laborers to return to work by saying they could lose their bonuses.

A month into the biggest U.S. refinery walkout in 35 years, money is tight as strike pay from the United Steelworkers union is a fraction of normal wages.

About 6,550 workers are on strike at 15 plants, including 12 refineries with a fifth of U.S. capacity. Companies are relying on temporary replacements to keep plants open.

Up to 70 employees, out of 800, at Royal Dutch Shell Plc's Deer Park, Texas, refinery have decided to return to work, prompting feelings of betrayal, sources with knowledge of the situation said

[ROCKMAN]

"Up to 70 employees, out of 800, at Royal Dutch Shell Plc's Deer Park, Texas, refinery have decided to return to work." A little fact checking: No...70 didn't decide to return to work: 150 never went on strike in the first place. And at the Valero refinery in the same area the workers actually voted the union out of the shop completely. Turns out a lot of Texas refinery workers are pleased with their deals especially, as a RTW state they aren't forced to pay union dues. I know a few refinery workers and none of the care to share their big paychecks with the union bosses:

Federal charges have been filed against a local chapter of the United Steelworkers for allegedly intimidating workers who refused to join a recent nationwide strike. “As the highly-publicized United Steelworker (USW) union-instigated strike against oil refineries continues, a Shell Oil Company refinery worker has filed a federal charge against a local Steelworker union for intimidating workers for refusing to abandon their jobs,” the National Right to Work Legal Defense Foundation declared in a press release.

NRTW is helping to represent Joseph Smith, an industry worker from Texas who filed the unfair labor practice charge with the National Labor Relations Board, against his union. Smith argues that USW intimidated workers who refused to join its strike. Smith alleges that during its fight against the oil giants, USW turned on some of its own members. At Smith’s plant in Deer Park, roughly 150 of the approximately 800-large workforce have continued to work during the strike, with many resigning their membership in the USW Local 13-1 union, as is their right under federal labor law and Texas’ popular Right to Work law.

As the stream of workers resigning union membership and returning to work grows every day, it was reported that USW Local 13-1 union officials turned off their fax machine in an attempt to stop workers from exercising their right to resign and return to work.

[dinopello]

it was reported that USW Local 13-1 union officials turned off their fax machine in an attempt to stop workers from exercising their right to resign and return to work.

I found where it was reported that it was reported, but who reported it ?

[ROCKMAN]

Makes one wonder how the consumers in CA feel about those unions. Meanwhile in Texas (a Right To Work state where union membership is not a requirement) gasoline is selling for less than $2/gallon in many areas…about 35% less statewide.

Reuters - Retail prices for regular gasoline in West Coast states rose a record 37.2 cents a gallon since last week to $3.12 a gallon on Monday according to the EIA. The increase marks the largest week-to-week increase in the region since the EIA's weekly survey of West Coast prices began in 1992, the government agency said.

California, which relies heavily on in-state production to meet its large demand for fuels. In the San Francisco area, Tesoro Corp's 166,000 bpd Golden Eagle refinery in Martinez stopped producing gasoline last month amid a labor strike