Low Prices and Federal Policies Reducing Oil Industry Workforce

The decline in oil prices has meant much lower gasoline prices for the consumer, which is a good thing for many Americans who drive to work or take driving vacations. But, the oil industry’s workforce is not faring well because low oil prices means less money to invest in drilling new oil wells and with fewer wells comes lower employment. One estimate is a decline of 75,000 jobs worldwide[i]–over 10 percent of the U.S. oil industry work force. Another estimate indicates oil company announcements of 100,000 layoffs worldwide. And, it is unlikely that either estimate will be the final number of layoffs since oil prices are not expected to recover soon. Unfortunately, these job reductions are affecting middle class employees—many of whom work on oil rigs.[ii]

President Obama, in this year’s state-of-the-union speech, argued that his budget was oriented to helping the middle class. Yet, many think his administration is hurting the middle class by holding U.S. crude oil hostage, thereby causing oil workers to lose their jobs.

The oil and gas industry has been the one spark in an economy that has been sputtering during the Obama Administration. And the sputtering was particularly bad during the first quarter of 2015 with economic growth at just 0.2 percent, down from 2.2 percent in the fourth quarter of 2014. One of the reasons for the low economic growth is the pullback in energy company investment due to the plunge in oil prices. Exploration and production companies have been slashing capital spending since prices started falling last year. Investment in non-residential structures fell 23.1 percent in the quarter, due largely to the oil price slump, as energy companies sharply reduced the number of oil drilling rigs.[iii]

Oil Worker Layoffs

The worldwide oil and gas industry, including oilfield services companies, parts manufacturers and steel pipe makers, has laid off at least 75,000 workers so far. Most of these layoffs are solid middle class jobs, paying around $100,000 a year, which is a common pay package for drilling rig workers. For every drilling rig mothballed about 40 people lose their jobs. That is a lot of jobs considering over half of the oil drilling rigs in the United States have been cut since the price plunge–over 800 rigs. The remaining oil drilling rigs (about 700) were last seen at this level in October 2010. [iv] See chart below.

Source: Yahoo Finance, http://finance.yahoo.com/news/oil-rig-count-lowest-level-180808950.htm

The service companies have borne the brunt of the layoffs at 59,000, followed by exploration and production companies. Manufacturing companies, especially pipe manufacturers have laid off over 7,100 workers. Most of these cuts have been in the United States. The irony of the situation is that the tremendous growth in oil and gas jobs was critical to helping the United States come out of the Great Recession—now they are disappearing.

Source: Forbes, http://www.forbes.com/sites/christopherhelman/2015/03/16/oil-layoffs-itemized-75000-and-counting/

Other Layoff Estimates

According to research by Graves & Co., a Houston consulting firm, at least 91,000 layoffs have already occurred worldwide, with the majority in oil-field-services and drilling companies. And, energy companies have announced plans to lay off over 100,000 workers around the world.

According to federal employment data from the U.S. Bureau of Labor Statistics, direct employment in oil and gas extraction, which increased by over 50,000 jobs since 2007, fell by about 3,000 jobs since its peak in October at 201,500, and 12,000 jobs have fallen from the energy support category since it reached 337,600 jobs in September. These job counts are expected to decline further.

Conclusion

Oil industry job layoffs have reached at least 75,000 worldwide and are expected to be over 100,000 soon and counting. These job reductions have resulted from the plunge in oil prices that occurred since June of last year. The reduced oil prices have resulted in less exploration and drilling and a mothballing of over 800 oil rigs in the United States. While consumers are benefiting from lower oil and gasoline prices, many middle class families are without well-paying jobs – and that’s causing the economy to stagnate once again.

[i] Forbes, Itemizing the Oil Bust: 75,000 Layoffs and Counting, March 18, 2015, http://www.forbes.com/sites/christopherhelman/2015/03/16/oil-layoffs-itemized-75000-and-counting/

[ii] Wall Street Journal, Oil Layoffs Hit 100,000 and Counting, April 14, 2015, http://www.wsj.com/articles/oil-layoffs-hit-100-000-and-counting-1429055740

[iii] USA Today, U.S. economy grew at anemic 0.2% pace in Q1, April 29, 2015, http://www.usatoday.com/story/money/business/2015/04/29/first-quarter-gdp/26536045/

[iv] Yahoo Business, Oil Rig Count: At Lowest Level Since October 2010, http://finance.yahoo.com/news/oil-rig-count-lowest-level-180808950.html