Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Amid the jubilation about June payrolls, spare a thought for those employed -- or previously employed -- in America's oil and gas fields.

The "mining and logging" sector -- which encompasses oil and gas -- was one of only two major industry groups to see a net loss of jobs last month, according to figures released on Friday by the Bureau of Labor Statistics. At just over 172,000, the number of people employed in "oil and gas extraction" hit its lowest level in five years.

Beneath the headline number, though, there are tentative -- very tentative -- signs of stabilization, mirroring what has happened with the rig count. As ever, though, it all rests on what happens with oil and gas prices, which have spent this week like a pair of stumbling drunks.

Drill, Maybe, Drill
The Baker Hughes U.S. rig count has shown signs of bottoming out
Source: Bloomberg

To get the whole picture, you have to consider not just those "extraction" workers -- such as petroleum engineers and geoscientists -- but also support workers on the rigs. The BLS publishes data on the latter with a one-month lag.

In May, the combined workforce fell below 400,000 for the first time since March 2011.

Well Down
Oil and gas extraction and support payrolls have fallen 26 percent from their peak in late 2014
Source: Bureau of Labor Statistics

If there is any glimmer of silver on this, it is that the pace of decline, on a year-over-year basis, pulled back ever so slightly in May.

Bottom Of The Barrel?
This downturn in oil and gas payrolls has been deeper than prior ones but may be turning
Source: Bureau of Labor Statistics

If that apparent turn has any meaning, it will be because of two things. First, while output has been falling in response to lower prices, productivity has held up well.

Working Overtime
Output per worker has jumped by more than a third since the start of 2014
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg Gadfly analysis
Note: Assumes U.S. natural gas production in May equal to April.

The other factor: those wayward oil and gas prices. Using monthly price and output data, it's possible to construct a crude measure of the industry's revenue (this is simplified and ignores regional differentials and royalties). Similarly, BLS data on employment, hours and average wages allow me to calculate a rough overall wage bill for the oil and gas sector. You can see the impact of the recent rally in oil and gas here.

Wages Stay
The implied wage bill as a share of revenue has fallen back amid higher oil and gas prices
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis
Note: Assumes U.S. natural gas output in May same as in April.

That drop in the share of revenue going to wages came despite the length of the work week and hourly pay going up, on average, for those workers still with jobs. If oil and gas prices were back at their February levels, then that chart would have hit a new high of 19.8 percent in May, likely prompting even bigger job cuts.

While a hopeful sign, it's also a fragile one. Oil prices are being pulled down by weakening fundamentals for U.S. gasoline, which will likely prompt refiners to throttle back on their appetite for crude. The market did get some respite on Friday, however mild, from the general optimism spawned by the headline payrolls number, so there is that. Indeed, at this point, the best hope for oil and gas workers at risk of losing their jobs is that America continues to hire outside of their ranks.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net