In 2014, the price of oil crashed and economists expected this would give the economy a boost. However, the oil price drop was followed not by a boom but rather a slowdown – recent figures revealed that growth in the first quarter of 2015 was only 0.2 percent.
Currently, the price of oil is down more than 40 percent since June of 2014. Employment at U.S. energy companies has dropped by 6,800 jobs so far this year, according to recently released federal data. And jobs at energy services companies have fallen by about 30,000. Graves & Co., a consulting company in Houston, says that energy employers have announced 120,000 layoffs around the world.
DCR TrendLine Oil and Gas Employment Index
The oil-rig count has been falling consistently, with over 23 straight weeks of decline. The number of U.S. oil drilling rigs is considered a proxy for activity in the oil industry. There are now 59 percent fewer rigs working since a peak of 1,609 in October 2014.
The Impact of Oil Prices on GDP
The gross domestic product (GDP), which is the total annual output of an economy, is made up of four factors – 1) government spending, 2) net exports, 3) consumer spending, and 4) investment. While oil prices do not affect government spending, they do have a large impact on the other factors.
U.S. Petroleum Transactions
Net exports have seen an increase due to lower oil prices. While the United States exports little oil, it imports a lot at approximately 9 million barrels per day. With oil price at about $60 below its peak, Americans are spending $500 million less abroad every day. Combined with the lower price of domestically produced oil, economists expected that consumer spending would increase. But due to slow wage growth, it appears that consumers are reluctant to spend or invest; the monthly growth rate of retail sales has declined in the past few months.
The fourth component of GDP is also slow. From 2010 to 2014, investments in mining exploration, shafts and wells increased by 80 percent. But now firms are cutting back, with investment in mining structures shrinking to 60 percent in the first quarter of 2015.
According to Capital Economics, this lower investment is enough to subtract 0.8 percent from total GDP growth. Lower investment also means job costs. In March 2015 one of the largest oil states, Texas, saw its largest month-on-month job creation drop since 2009.
The Impact of Oil Prices on Employment
While the economy has continued to add jobs, states that rely heavily on the oil industry have experienced significant cuts. Texas was down 25,400 jobs in April 2015, while Oklahoma was down 12,900 jobs. According to Michael Feroli, the Chief U.S. economist at J.P. Morgan Chase, the scale of job losses in Texas is so large that the state may be in a recession. Over the past four months, cheap oil prices have led to nearly 100,000 losses in industry jobs. Just recently Schlumberger Limited, the world’s largest oil field services company, announced it would slash 20,000 jobs, citing a 29 percent decline in Q1-2015 profit.
For the 1,800 students in the United States who are expected to graduate this year with a bachelor’s degree in petroleum engineering, prospects are unfavorable. Enrollment in undergraduate U.S. petroleum-engineering programs has been increasing from 3,710 students in 2008 to 11,400 students this year.
“There are too many students coming out looking for jobs. More than three times as many students are graduating with undergraduate petroleum-engineering degrees than in 2008.” ~Lloyd Heinze, Professor at Texas Tech University
According to Nathan Kelley of Moody’s Analytics, oil job cuts will continue into 2016. He expects net oil industry job losses to total 37,000 for the remainder of 2015.
Women in the Oil Industry
An American Petroleum Institute (API) study conducted in 2014 showed that women make up only 19 percent of the oil industry’s workforce. This is compared to 47 percent of the overall American workforce.
Some oil companies are taking strides to increase the gender diversity in their workforces. ExxonMobil, for example, holds an annual “Introduce a Girl to Engineering Day”, where the company sends its female engineers and scientists to middle schools as mentors and instructors, with the aim of getting female students interested in the subject and preparing them to take courses in high school that will help them study engineering in college.
The API report predicts that the share of woman in white-collar oil industry jobs will increase, but will decline even further on the blue-collar side.
Projected Female Job Opportunities in the Oil Industry , 2010-2030
The sector’s aging workforce increases the importance of overturning the lack of appeal the industry has to women. Thousands of older employees are beginning to retire from the oil industry. One survey predicts that 22,000 geoscientists and engineers will leave the oil business over the next three years, mostly due to retirement. While salaries are well above national average, oil companies are still struggling to attract workers. Many students stay away from the industry citing environmental concerns and the bad reputation of the industry due to high gas prices.