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.

Friday's U.S. payroll numbers were a damp squib -- but not in the oil business.

The number of people employed in oil and gas extraction (as the Bureau of Labor Statistics classifies them) went up in March, racking up the first back-to-back monthly job gain since October 2014, just before the oil crash began in earnest.

Factoring in the other half of the equation, oil and gas support workers, means looking back further, as those data are lagged by one month. Still, they suggest the industry's recovery continues apace. More than 4,000 support jobs were added in February, the fourth increase in a row and the biggest since September 2014.

What follows are updates to my sort-of-regular charts of the state of employment in the oilpatch. First, the change in year-over-year payrolls for the sector:

Recovery Position
Oil-sector payrolls are now just 7 percent lower than a year ago
Source: Bureau of Labor Statistics

Total payrolls are now about 381,000. That's still more than 150,000 below the peak reached in September 2014. However, with payrolls having stood at 383,000 in May 2016, I am guessing that year-over-year change chart will edge into positive territory once data for next month come out (in July).

The optimism in the industry is tempered with some concern that renewed drilling, well-completion and hiring will cause costs to rise even as oil prices, while higher, are still only around $50 a barrel and natural gas prices remain stuck around $3 per million BTU. Productivity is the balancing factor, and this seemed to dip in February -- which is a concern until you realize it always dips in that month due to a seasonal drop in output:

Hibernation
Productivity seems to have plateaued but February's dip is just par for the course
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg Gadfly analysis
Note: Assumes natural gas production in February 2017 was the same as in January.

Meanwhile, the rally in oil and gas prices earlier in the year means that, even with increases in employment, average hours and wages, the estimated check cut by the industry to its workers still looks manageable compared to revenue:

Steady Earners
The U.S. oil sector's wage bill still hovers at around 12 percent of revenue
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis
Note: Estimated wages divided by estimated revenue for the oil and gas sector, derived from labor, production and pricing data. Assumes U.S. natural gas production in February 2017 was eqal to that of January.

Oil prices have dropped since February, although gas prices have rallied due to a late-winter cold snap. Net net, the wage burden probably ticked up in March.

Even so, hiring has likely stayed strong and perhaps even accelerated. Only two weeks ago, Halliburton Co., which cut 30,000 jobs over the past two years, announced it was hiring again in order to meet surging demand for its services in the U.S.

Barring a sustained drop in oil prices, the recovery in oil and gas payrolls should keep going. As a corollary, we are about to find out how quickly and easily the workers who were shed can be hired back.

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

  1. I estimate this by multiplying U.S. oil and gas production by average spot prices for WTI crude oil and Henry Hub natural gas to get a revenue figure. Wages are simply a product of employees multiplied by average hours multiplied by average hourly earnings. It's a bit simplistic but provides some sense of how the wage burden on the industry has changed over time.

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