If you are playing the oil market, either long or short, you probably are going to be quite interested as to what are the effects of the recent walkouts and strikes involving refinery and port workers. Ports are crucial to importing oil. Refineries, of course, are crucial for turning oil into gasoline and other petroleum products. The short answer is that it is not going to do much in terms of the supply of oil.
The strikes only impact the distribution and refining of oil. Oil has already been produced. It has already been pumped out of the ground. The only issue is that these labor actions impact how that oil can get from point A to point B. Also, they impact how oil can change from crude oil to refined gasoline.
Not surprisingly, there are different markets impacted. The price of gas at the pump may be affected. Keep in mind that the total supply of crude oil is much higher than the actual supply of refined gasoline. At the end of the day, I am afraid that these two strike actions won’t really have that much impact on the price of oil. If anything, these walkouts, lockouts, and other labor-related actions might actually end up depressing the price of oil. Hard to believe? Here is why.
First, when there are port disruptions, don’t think for a moment that there won’t be any shockwaves sent throughout the rest of the economy. For every day a port is shut down, there are disruptions in the supply chain. When there are disruptions in the supply chain, a lot of economic activity evaporates overnight.
This can’t help but negatively impact the rest of the economy. This can translate to lost jobs. The more people lose their jobs, the more unemployed people there are, the lower is the demand for oil. Moreover, the more businesses are negatively impacted, the more they have to cut back, and this cuts down on their oil and fuel requirements. All told, these different factors, both seen and unseen, intended and unintended, can add up to more downward pressure to the price of oil due to a weaker demand.
