Dallas Fed Sees Links Between Jobs, Rig Counts and Oil Prices Breaking

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Data from the Federal Reserve Bank of Dallas show job growth in the oil and gas sector is sluggish, though the usual indicators--rig counts and oil prices--are becoming less of a determining factor.

The Dallas Fed found that job growth over the four-month period to the end of April was at 2%, while the unemployment rate stood at 4.2% over the period. Nationally, job openings through April fell to the lowest level since 2021, with the unemployment rate lingering just below 4%, a figure that's stood for the better part of two years.

The labor market in Houston has been strong and broad based, the Dallas Fed said, but not for every sector.

"In the energy sector, production jobs declined year over year while growth has been concentrated in mining-related services," a report published Wednesday read.

Oil, gas and mining support saw job growth increase by 0.4% over the four months to April, though it was down 2.3% from April 2023 to April 2024.

Year-on-year, that was the sharpest contraction among any of the business sectors tracked by the Dallas Fed.

The bank had been expecting something of a slump, according to a year-end 2023 report. The Fed's uncertainty index rose substantially for companies operating in Texas, Oklahoma and parts of Louisiana, the report showed.

All of those three regions hold extensive shale reserves. Combined output is around 6.6 million barrels of oil and 4.5 billion cubic feet of natural gas per day.

One-third of upstream executives surveyed in the December poll said they expected their firms to slightly increase their capital outlays in 2024 compared to 2023, while about a quarter felt their capital spending would remain close to 2023 levels.

Rig counts and oil prices, meanwhile, have been on a something of a decline. Rig counts in the Permian during the survey period for the Dallas Fed were around 310, for example, about 40 or so lower than during the same period last year. The total U.S. rig count, meanwhile, declined from 625 in March to 617 in April.

Oil prices, meanwhile, were about $4 less per barrel than during April of last year, though the price was well below levels of around $101 per barrel seen in April 2022.

There is usually a correlation between rig counts, oil prices and employment, though the Fed said that's no longer necessarily the case.

"Historically, the rig count and mining jobs have closely followed the price of oil, but that relationship weakened after the pandemic," the Fed explained. "Increasing productivity and efficiency in the oilfield and a shift to business models that prioritize investor returns over production growth mean these publicly available indicators are now less responsive to changes in the price of oil."

The Dallas Fed's latest energy survey, published in March, found that oil and gas drillers are nevertheless expecting something of a profit based on current market conditions.

Across the board, respondents to the Dallas Fed's energy survey said drillers needed an average price of $64 per barrel to profitably drill a new well, some $2 per barrel higher than last year's expectations. The break-even price in the lucrative Permian Basin was $4 higher than last year at $65 per barrel.

But despite some recent headwinds, West Texas Intermediate, the U.S. benchmark for the price of oil, is trading at around $75 per barrel.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).