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.

Like everywhere else in America, it's payrolls day in the oil patch. And, really, all you can say at this point is:

"Thanks, O ... PEC"

This regular monthly Gadfly round-up of employment trends in the U.S. oil and gas business, with data from November, reaffirms the recovery theme. The most striking chart this time around is this one:

Both Barrels
Payrolls went up in November for both oil and gas extraction and support workers for the first time since September 2014
Source: Bureau of Labor Statistics

Yes, I know it's hard to see that little uptick on both lines over on the right, so here are the data shown in a different way:

Solid Ground
Employment in the U.S. oil and gas industry has clearly stabilized
Source: Bureau of Labor Statistics
Note: Change, year over year, in combined oil and gas extraction and support employment.

As usual, I've calculated a crude estimate of the exploration and production industry's revenue using data from the Energy Information Administration and average benchmark price data from Bloomberg. I've then used data from the Bureau of Labor statistics on payrolls, hours worked and hourly earnings to estimate how much revenue is going to wages:

Steady Earners
Higher oil and gas prices have helped stabilize the wage bill at around 12 to 14 percent of revenue
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis
Note: November oil production data estimated from preliminary weekly figures from the EIA. Assumes U.S. natural gas production in November 2016 was flat versus October.

The thing to remember here is that these November figures came before OPEC's agreement injected some optimism into oil prices (and the onset of winter did the same for natural gas). So when the December data come in at the start of February, wages should represent an even lower proportion of revenue.

There are still clouds on the horizon. Natural gas prices have dropped sharply so far in January as winter hasn't been as cold as expected. And the broader wage inflation seen in Friday's employment data adds one more reason for interest rates to rise further, sooner. This puts pressure on emerging markets and, by extension, oil demand.

Plus, of course, it's early days for OPEC and company when it comes to delivering their promised supply cuts. For now, though, that promise is enough to help E&P firms get back to work. 

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

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

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