Explainer: Why are French refinery workers striking?

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PARIS, (Reuters) – The French government is intervening to end a blockade of refineries if workers do not end a weeks-long strike that has led to shortages at petrol stations and impacted global diesel markets.

Strike action and unplanned maintenance have taken offline more than 60% of France’s refining capacity – or 740,000 barrels per day (bpd) – forcing it to import more at a time when global supply shortages have pushed up diesel costs.

ExxonMobil  has brokered a deal with two leading unions at its sites, though a third, the muscular CGT union, rejected the agreement. TotalEnergies  remains deadlocked with unions.

WHY ARE REFINERY AND FUEL DEPOT WORKERS STRIKING?

Trade unions are demanding wage increases to help workers cope with spiralling inflation as Europe contends with one of its worst cost-of-living crises in decades.

Inflationary pressures have been exacerbated by the fallout from Russia’s war in Ukraine, with the continent bracing for an energy crunch this winter after Moscow cut gas supplies.

Exxon’s French business, Esso France, said it had a reached an agreement with two trade unions for a 6.5% salary hike in 2023 and a 3,000 euro ($2,908) bonus.

The Exxon wage deal is among the most generous so far in Europe, and may spur concern by companies and economic policymakers that it could set a precedent for negotiations in other industries.

The hard left CGT union is demanding a 10% pay rise for its refinery workers.

WHY IS SO MUCH CAPACITY OFFLINE?

The outages have come during the so-called maintenance season in Europe, which follows the peak summer driving season and comes ahead of winter heating demand.

It is not clear how quickly ExxonMobil’s operations will be able to resume after the company struck its wage deal.

Some 1.5 million bpd are expected to be offline across Europe in October, tightening already-strained supplies, particularly of middle distillates.

Middle distillates such as diesel and gas oil are primarily used in freight transport, manufacturing, farming, mining, and oil and gas extraction.

WHAT ABOUT RESERVES?

France has enough strategic reserves of oil products to cover average demand for about three months, the UFIP petroleum industry body estimates.

The government has already dipped into those reserves to ensure industries like sugar refiners maintain operations. It is prepared to do so again.

Nearly one in three fuel stations nationwide has run short of at least one product.

France’s diesel inventories stood at 60 million barrels in June, almost 15 million below the five-year average for that month, according to Energy Aspects.

IS FRANCE RAISING IMPORTS OF REFINED PRODUCTS?

Yes. France usually imports about 50% of its diesel needs yearly. Imports generally increase going into the fourth quarter due to refinery maintenance schedules.

But in the week to Oct. 2, imports of oil products surged 40% week-on-week to cover the production shortfall caused by the strike, data from energy analytics firm Vortexa showed.

French suppliers have been buying diesel cargoes on a ship-to-ship transfer basis from record numbers of Very Large Crude Carriers (VLCCs) coming into Europe, energy consultancy group Wood Mackenzie said earlier this month.

IMPACT ON FUEL PRICES?

The French refinery outages are tightening European supplies and reverberating through global markets.

Diesel refining margins in both Europe and the United States have hit all-time highs. Meanwhile, northwest European diesel barge profit margins hovered near record highs hit on Monday.

Uncertainty over how long the French strikes will last has lifted European diesel spreads relative to crude just as Western sanctions against Russia are driving prices still higher.

The European Union is trying to source around 600,000 bpd of diesel to replace Russian fuel ahead of a February ban.

Reporting by Forrest Crellin and Benjamin Mallet in Paris and Rowena Edwards in London; Editing by Richard Lough and Bernadette Baum

Workers from TotalEnergies and Esso ExxonMobil attend a protest called by CGT union outside Esso refinery in Fos-Sur-Mer, France. EPA-EFE/GUILLAUME HORCAJUELO

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