United Steelworkers Union rejects five contract offers from oil companies and stages mass walkout
Crude oil prices have taken another tumble after union leaders launched a large-scale strike at nine refineries in the United States.
Brent crude oil futures were trading at $51.93 a barrel at 7.33am GMT this morning, down $1.06, reports Reuters.
The fall comes a day after the United Steelworkers Union (USW) began the strike, prompted by a failure to agree a new three-year national contract with major oil companies.
"This industry is the richest in the world and can afford to make the changes we offered in bargaining," said Tom Conway, USW's international vice president of administration, in a statement.
The nationwide walkout is the first of its kind in 35 years and affects plants that together account for more than ten per cent of US refining capacity, reports the BBC.
Lead negotiator Royal Dutch Shell made five contract proposals but all have been rejected by the union, which is calling for higher annual pay increases, better healthcare coverage and a reduction in non-union contract workers.
Meanwhile, an oil and gas summit is being held today in Aberdeen, where industry leaders are expected to urge the UK government to tackle major challenges facing North Sea operators.
A global surplus has driven oil prices down, forcing oil companies to cut costs and rein in spending.
Brent crude has more than halved in price since its peak of $115 a barrel last summer, with some commentators warning that the industry is "close to collapse".
Nevertheless, there was a surge on Friday after a report showed that 94 US oil rigs and 11 Canadian oil rigs were taken offline in the past week. Forbes described it as a "violent short-covering rally" in which traders interpreted the news as a sign that the oil glut may gradually alleviate.
But traders are already cashing in on those strong price gains, says Reuters, while slowing manufacturing growth in China has also weighed on oil markets.
Oil price slide drives Russia to 'junk' status
Russia's sovereign debt has been downgraded to "junk" status for the first time in a decade by ratings agency Standard & Poor as economists anticipate a "painful recession" for the country, which is suffering from the effects of the low oil price and international sanctions.
S&P said the downgrade was caused by Russia's reduced flexibility to cut interest rates and a weakening of its financial system.
The economy is battling currency depreciation, collapsing oil export revenues and Western sanctions over Ukraine. The rouble tumbled further on the news of the downgrade, dropping to 68.76Rb to the dollar.
It is possible that other ratings companies will follow S&P's lead and that Russian corporate bonds and banks may also face downgrades. The lower the debt rating, the more expensive it becomes to borrow and some investors are ruled out from holding the debt at all.
The Russian economy contracted for the first time in five years in November, with economists "anticipating a painful recession in Russia this year", says the Financial Times. Russia is heavily dependent on oil exports, and with global oil prices having halved since June last year its economy has struggled to maintain momentum.
Last night, Russian finance minister Anton Siluanov said the downgrade showed "pessimism" and failed to take into account stronger aspects of the Russian economy. "There's no reason to dramatise the situation," he said.
But Mohamed El-Erian at Bloomberg warns that the downgrade will "worsen the country's economic and financial implosion" and is likely to lead to "further currency depreciation, capital flight, and could advance the timetable for import and capital controls".
The broader economic implications will depend on the reaction of Vladimir Putin, says El-Erian. There is hope that Putin will draw back from Ukraine and open a better dialogue with the West, but others fear he will continue his "regional adventures" to distract the Russian public from the imploding economy, prompting further sanctions from the West and then counter-sanctions from Moscow.
"The result would be deeper economic and financial turmoil in Russia, and a return to recession for Europe – both of which would contribute to a higher risk of global financial instability," says El-Erian.
The oil price steadied this morning at $48 per barrel after a volatile day of trading yesterday. Nevertheless, it remains close to the lowest it has been for six years.
Last updated 2 Feb 2015