U.S. refinery strike rift grows ahead of deadline

Reuters News
Posted: Jan 30, 2012 2:38 PM
U.S. refinery strike rift grows ahead of deadline

By Erwin Seba

(Reuters) - Union and oil company negotiators resumed talks on Monday after union leaders told workers to prepare for a strike within 48 hours that could shut down 6 percent of U.S. refinery capacity and cause gasoline prices to rise at a time when the country is struggling to sustain a fragile economic recovery.

A strike by the United Steelworkers union could start as early as 12:01 a.m. EST (0501 GMT) on Wednesday on the East Coast and then spread throughout the country.

USW members are hourly employees at about two-thirds of U.S. refining capacity, but only about half of those workers would go on strike on Wednesday, when their contracts expire.

More workers would walk off their jobs when contracts at their refineries expire.

Most refiners have made plans to use temporary replacement workers to keep their refineries operating during a strike.

Oil companies used temporary workers, mostly salaried supervisors and engineers, to keep their refineries operating in the last nationwide strike by refinery workers in 1980.

A strike would likely bolster gasoline crack spreads for refiners, J.P. Morgan said in a research note issued Monday.

"The spate of refinery outages seen on the U.S. East Coast has bolstered gasoline and distillate cracks in the past week," the J.P. Morgan note read. "Further disruptions to refinery throughputs would offer additional support to cracks."

A crack spread is the difference between the cost of oil and the price refiners charge for motor fuel.

Over the weekend, USW negotiators sounded a pessimistic note, warning members that without a "more substantive response from the industry" a strike may be necessary.

The USW also notified members to begin preparations to offer a safe, orderly shutdown of refineries in the event of a strike.

Most refiners are expected to reject such a shutdown offer and begin assigning replacement workers to run refinery production units.

In the Monday note, J.P. Morgan said "the notification of members may be seen by some as a bargaining tactic."

For its part, lead oil company negotiator Shell Oil Co said on Sunday it was "optimistic that a mutually satisfactory agreement can be negotiated with the USW."

Talks for a new contract began January 17 and continued into Sunday night.

While the strike deadline is Wednesday, the Steelworkers negotiators can extend it if they think progress is being made. In 2009, talks were extended three days to reach an agreement.

Shell Oil Co is the U.S. unit of Royal Dutch Shell Plc.

(Corrects in paragraph 3 that USW represents workers at two-thirds of U.S. refining capacity, but only workers at one-third of U.S. capacity would strike as early as Wednesday)

(Reporting by Erwin Seba in Houston; Editing by Lisa Shumaker)