The stock market is at record levels, consumer confidence is high, the north American rig count is increasing and the election is over. It’s a new day and the perception in the oil & gas industry is things are finally starting to turn around. There are reasons for this new optimism, namely, the Trump administration has promised to slash regulations in our industry and open up new leases in the Gulf of Mexico but even with these indicators, there are still some ominous clouds on the horizon.
The Good (Oil & Gas Industry) News
As mentioned, there are positive signs that the oil & gas industry is turning the corner and coming out of what has been the worst downturn in recent memory. Here are a few positive indicators.
- The global oil supply has been falling since the 4th quarter of 2015. According to the IEA, “Global oil supplies plunged nearly 1.5 mb/d in January, with both OPEC and non-OPEC countries producing less.”
- Global demand for oil has increased over the past year currently at 97.27 mb/d which is greater than the current supply (currently estimated to be 96 mb/d). Most of this shortfall has been attributed to the recent production cuts by OPEC.
While it appears that OPEC’s initial cut in output is the deepest in OPEC history, there are still non-OPEC producers that are increasing production, namely the US. According to the most recent IEA report, “For non-OPEC countries outside of the output deal, we expect significant increases in production in, for example, Brazil, Canada and the US.”
For the past quarter, oil prices have remained relatively flat selling in the $50/bbl to $54/bbl range. Part of the reason why we can’t seem to go beyond $54/bbl is because of increased production in the US.
Other factors that could negatively impact the demand for oil would be a recession. To that end, here are a few troublesome indicators.
- It’s not a questions of “if” but “when”. Recessions are a part of economic activity and historically, since 1945, recessions occur on average every 7 years. Our last recession ended in June 2009 so in all likelihood, we will experience a recession during the Trump administration.
- The stock market is overvalued. Stock market corrections tend to freak people out.
I am not an economist. I don’t look at leading economic indicators for trends, analyze charts or read tea leaves. As a Recruiter, what I do look at is who is hiring and who is not. What I have noticed has caused me some concern. Hiring across most sectors appears to have slowed down significantly over the past year.
Indeed.com which touts itself as “the world’s #1 job site allows us to look at and compare historical job trends which can be very insightful. For example, here is a chart from their web site for job postings that contain the words “oil gas”. Even though the downturn didn’t occur until the summer of 2014, the number of oil and gas job advertisements on their web site started to drop almost 10 months prior.
Which brings me to an interesting indicator, Industry Employment Trends. Indeed tracks employment trends across all of the major industry sectors. According to Indeed, almost all industry sectors have been in a negative growth rate for the past year. The following chart shows the number of Job Postings on Indeed.com from January 2016 broken down by industry. According to their own Industry Category chart, the number of company job postings in January 2016 had increased from the prior year anywhere from 7% to 127%.
Fast forward to today. The rate of growth across all industry sectors has decreased significantly from the prior year. Half of the industry sectors have seen a decrease in year over year job postings. This indicates is that there is a decrease in hiring demand across all employment sectors for over a year. This decrease in Employment Trends did not happen overnight. It started in February 2016 and has gradually grown worse.
What Does It All Mean?
Just like the decrease in oil & gas industry job postings preceded the downturn by 11 months, the indicator of decreased hiring demand across all sectors may also point to a coming recession. As stated earlier, nobody can predict when the next recession will occur but my hope is that when it does, it does not coincide with the rebound in the oil & gas industry. Right now, the rebound is very fragile. Any slowdown in the economy would decrease the demand for oil at a time when the supply should be increasing. For now, I am displaying cautious optimism.
About the Author
Tim Cook is the Sr. Manager for the midstream/upstream division of PathFinder Staffing, an oil & gas recruiting agency located in Houston, Texas. For more information about our services, visit our web site at www.PathFinderStaffing.com or call us at (281) 858-7325.
- 12 Mar, 2017
- Tim Cook
- 0 Comments