They always settle these things, don’t they? What things? Oh, you know, those little things like insignificant labor disputes with the oil companies and the like. They always seem to get settled and they almost never affect the market.
Or do they...?
RBOB gasoline futures went on a tear yesterday driving the whole petroleum complex as strike fears are in play with union refinery and pipeline workers threatening to go on strike. Earlier this year, according to the United Steel workers website, oil workers from the United Steelworkers union overwhelmingly ratified the 2009 National Oil Bargaining policy and gave strike authorization to the union. This was a sign that these negotiations might be a little tougher than normal. Bloomberg News’ Barbara Powell reported that the United Steelworkers union rejected a third contract offer by Royal Dutch Shell Plc covering refineries representing about two-thirds of U.S. capacity and the market started to get nervous. Marla Dickerson at the Los Angeles times wrote that roughly 24,000 unionized refinery and pipeline workers across the United States are prepared to walk off the job at midnight Saturday if negotiations with major oil companies don't result in a new contract.
How did we get to this point? Is it possible that low gasoline demand is making it less imperative for oil companies to look for a quick settlement? Demand for gas is horrible and refiners are already doing extended maintenance as runs continue to fall near record lows. The LA Times says that, “the union is in a much weaker position than it was just six months ago, when crude prices were riding high and major oil companies were posting record earnings. Now the economy is slumping. So are refining profits. And the U.S. is swimming in gasoline, thanks to weak demand.” They quote Dave Campbell, secretary-treasurer of USW Local 675 as saying that the oil giants who made huge profits last year "are now poor-mouthing us" in contract talks. "These oil companies are big, major companies," he said, "with lots of wealth that could be shared." Linda Rafield of Platts said that the unexpected draw in gasoline inventories in this week’s stocks report help us along. Demand improved a bit, but a lot of people do think this strike could further impact production. Usually the unions resolve this before it gets to that point, but this looks like it will go down to the wire. Bloomberg News quotes Gary Beevers, the Steelworkers’ international vice president in charge of the talks, said in a written message to union members that if there is a failure to reach a new accord it poses a real threat of strike action. The LA Times quotes USW representative Lynn Baker as saying that the talks are going slowly but we are optimistic that we can get a fair and equitable contract.
Yet will the union back down in the backdrop of one of the financial crisis. On the day that it was reported that jobless claims rose to the most since the government's records began in 1967 is this really the best time to be talking strike? I think it will get settled. We think selling RBOB on a rally might be a good play if you think the strike will get settled. If Not then buy a break.
We're short March crude from approximately 4354 on what is now a quadruple rollover! Stop 5350
Sell March heating oil at 15100 - stop 15600
We're short March RBOB from approximately 12450 - stop 12900
Sell March natural gas at 500 - stop 520
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com.
