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Bad timing for a strike?

February 2, 2015

The United Steelworkers of America is in the second day of strikes at nine oil producing facilities, with four of the nine affected sites located in Texas, a right-to-work state, and three in the West Coast states of California and Washington, all of whom have sea port facilities. The contracts would eventually affect 30,000 workers in 230 oil-related industries including pipelines, refineries and petro-chemical plants.

One location in Martinez, CA, producing 166,000 barrels a day is reported to have shut down.

Aside from the unions directly worker-related bargaining points related to safety, job security (forcing producers to use only union help where they now use non-union labor) and compensation (including a doubling of wage increase percentages), some also see this as an attempt to restrict the supply of oil, with the aim of raising the price to a point that oil companies will curtail layoffs. There are indications that per/bbl and gas and diesel pricing is already responding with upward trends.

Is this the time for that strategy? Maybe not.

Although there has been a lot of talk (mostly centered around discussions about the Keystone pipeline) that U.S. oil can’t be exported, the fact is that both raw crude and petroleum-based refined products are exported. Unfortunately, our annual crude oil exports of 48.968 million barrels only amounts to about 4.5 days worth of our annual production of 1,321,787 million barrels annually.

According to government statistics, that export figure approximately doubled the 2012 export total crude exported. That sounds like a lot, and it is, but let’s put it in perspective. The top three oil producing nations, Saudi Arabia, the U.S. and Russia together were producing 33.25 million barrels a day in 2012. Thus, our exported crude hardly provides enough significant shrinkage in the world oil supply to provide actual upward price pressure. The price increases are at this point, purely grounded in perception and politics.

It has been obvious for some time that the demand for petroleum products is declining due to many factors, not the least of which is the price of a tank of gas as a percentage of income. Couple that  with technological advances that lower demand by increasing fuel efficiency of everything from cars to furnaces, and all of a sudden you have more oil on the market than can be sold at the highest recent price points of around $100/bbl.

Normally, that would automatically result in producers shrinking the supply by simply producing less oil. The whole idea of OPEC was to provide a stable floor and a political club for Middle East oil producers. He with the most oil wins, or so goes the conventional wisdom.

That purely economic norm is also subject to geo-political forces. Without going too far into the weeds, oil = money = power.

Having the most oil in the ground isn’t the whole story. As in most industries, market share is important, and that leads us to today’s cheap oil prices. Saudi Arabia doesn’t want to give up market share, so to maintain its top spot in terms of volume, it has not curtailed oil production, betting instead that cheaper oil will increase demand. Reasoning that it can withstand the revenue pressure better than any of the other oil producing nations, it has maintained production levels. Bingo, we pay around 55% less for a tank of gas than we did a year ago.

That leads us back to the USW strike. With downward pressure on profit margins, U.S. oil production was already slowing.

Producers have no incentive to bargain for increased costs. The only time a strike really works is when the unions have an industry (pardon the pun) over a barrel. Rail and dock strikes work because so many of our day-to-day necessities move via rail or ship.

Since the price at the pump always follows the upward price per/bbl nearly instantaneously, the people who will support those higher prices are the end users…John Q. Public. Since a large percentage of what we produce doesn’t hit the world market, the only place for U.S. producers to recoup costs is at home, via those value-added products. If you liked your  $3.50/gal. gas you could soon enjoy it again.

Striking an industry that is just looking for an excuse to curtail supply or increase prices seems a bit short-sighted, and a perfect example of bad timing. It’s unlikely that consumers will blame Exxon for the rise in prices.

With unions in general losing public support at a record pace, it’s hard to see why the USW would take this tack now.

From → op-ed

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