Fitch: Prolonged refinery strike could affect gasoline supplies

Fuel Fix ^ | March 10, 2015 | Ryan Holeywell

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The ongoing United Steelworkers strike hasn’t impacted the market for refined products much yet, but it could if the strike continues for much longer, according to a new report by Fitch Ratings.

The credit ratings agency says the strike could have an especially pronounced effect on the U.S. gasoline market.

So far, the implications of the strike — now in its second month and affecting 15 refineries and chemical plants — has been relatively limited, Fitch experts said. But that could be changing.

The first quarter of the year typically has lower demand for refined products, Fitch said; meanwhile, adequate inventories have blunted the effect, and companies are using backup plans to keep their plants online.

A more prolonged strike could strain gasoline supplies, Fitch said, as the summer driving approaches and demand for gasoline in the U.S. rises.

Mark Sadeghian, a senior director at Fitch, said the strike will have a gradual impact on gasoline inventories and prices the longer it plays out but didn’t speculate as to how big that impact might be.

“Having low crude oil prices as backdrop means we aren’t headed back to $4.50 gasoline any time soon as a result of the strike,” Sadeghian said. But, he added, “all else equal, it could push prices up somewhat.”

Already, the market has started taking into account the risks of a prolonged strike in gasoline prices, said Jeff Dietert, an analyst an energy investment bank Simmons & Co. International who covers the refining sector. He said it’s difficult to quantify exactly how big an impact the strike has on prices. But he’s confident motorists are paying more at the pump today than they’d be if the strike wasn’t occurring.

He agreed the price of gasoline could be pushed higher if the strikes persist into late spring and towards the summer driving season.

The problem is that even though the overwhelming majority of refineries hit by strikes remain online, they’re operating at lower-than-usual output that limits gasoline production compared to typical operations. That output could be further cut by labor-intensive maintenance that typically happens at refineries in the spring.

Mark Broadbent, a research analyst at the consulting firm Wood Mackenzie, says refineries are relying on less-experienced workers to run their plants. That means recovery times from upsets take longer.

The longer the strike drags out, the more likely those increased recovery times will become significant as they start to add up over time.

But, he cautioned, it’s unlikely that any particular event or disruption at a striking refinery would be big enough to impact the broader gasoline market because there is so much refining capacity along the Gulf Coast, he said.

Operators will have to work through the economics of whether they’re willing to pay less-experienced workers higher rates in the short-term to avoid higher costs for union labor in the long-term. But from an operational perspective, Broadbent said, there’s likely no reason refiners need to act quickly put an end to the strike. “It’s feasible they can go for quite a while,” he said.

But Dietert, of Simmons & Co, said companies likely don’t want to operate under the contingency plans for too long. Employees who are fulfilling striking workers’ roles generally work on longer-term infrastructure projects for their companies. Those projects are at risk of delays if those employees remain sidetracked performing day-to-day work at refineries instead.

“It’s likely they’ll put a strain on the organizations,” Dietert said.

[thackney]

[Blue Collar Christian]

Unions continue to overplay their hand, resulting in more and more insignificance.