Playing a potential refinery strike
Today's Financial News - Posted February 2, 2009
The nation’s refinery workers are threatening to strike. If they do, what does it mean to investors? There are multiple ways to play the news. Each of them could lead to big gains.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It looks like it will be another volatile week in the energy markets. On one side of the balance, a tremendous economic slowdown and an overabundance of oil are pushing prices down, while the other side of the balance, rather empty until now, has the threat of a major strike propping prices up.
Even with the threat of a strike, crude prices managed to dip below the crucial $40 level, the unofficial delineator between cheap and moderately priced oil. What will happen through the rest of the week is up to the United Steelworkers.
If the union, which represents some 30,000 employees and about 70% of the nation’s refinery production, votes against the proposed contract, volatility is bound to rise. If a contracted is ratified over the next day or so, then volatility and prices are likely to drop even further.
The union and the nation’s oil companies are working on a day-by-day basis, but insiders say they are getting close to a compromise. In fact, some say it looks like a strike may even be unlikely. But unions have surprised us before and will certainly do it again.
Destroying what’s left
What makes a worker want to go on strike in this economic downturn, especially after they were promised a raise, remains out of my grasp. But then again, what makes unions tick in the first place has always been a mystery to me. They drove large manufacturers out of my hometown, took Detroit to its knees and now they are threatening to tear at the throat of the nation’s last great blue-collar profit maker.
If these workers get the guts to strike, as an investor, you have a few options. You can pick a major oil refiner, like Valero (NYSE:VLO), the nation’s largest, and short it. After all, even a short-term strike will pull down its quarterly profits.
Another option is to play the broader refining industry through an ETF like United States Gasoline Fund (NYSE:UGA). As production falls, gasoline prices will rise.
Finally, you can play the broader energy market through a fund like the Ultra Oil and Gas ProShares (NYSE:DIG). If shares go up, its price will jump at a two-to-one ratio, at least on a day-to-day basis. Be careful with these ETFs as they are calculated on a single day, not a long-term trend. With the right level of volatility, these shares can actually drop in value even as prices rise over the long-term. They do it quite often.
But do not be certain crude prices will rise because of a refinery-level strike. Chances are, it could be just the opposite. We already have too much oil on the market. If refineries shut down, the supply glut will be even worse. In that case, take the Ultrashort Oil and Gas ProShares (NYSE:DIG).
No matter which slant you take or which way you choose to invest, one thing is certain. The nation’s largest companies are once again out of the predictable hands of a free market. They have been seized by unions and greedy politicians.
It makes the job of an investor even harder, but the profit opportunity is there just the same.
Next Article: Six percent inflation sound scary? Try a billion percent…
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February 2nd, 2009 at 4:47 pm
“What makes a worker want to go on strike in this economic downturn, especially after they were promised a raise, remains out of my grasp. But then again, what makes unions tick in the first place has always been a mystery to me. They drove large manufacturers out of my hometown, took Detroit to its knees and now they are threatening to tear at the throat of the nation’s last great blue-collar profit maker.”
As a member of the USW working at U.S. refinery, I can understand why the USW rejected the contract. The wage increase would not cover what they (USW) want to take out for dues. The union will kill this just like they did in Detroit. The union must go! We don’t need them any more.
Our socialist government will make it all better………..yeah right