Over the past decade, the landscape of global oil production has shifted dramatically, driven in large part by revolutionary new technology that enables the extraction of oil from shale rock formations. Oil extraction in large swathes of the US countryside—including North Dakota, Pennsylvania and Texas—jumped dramatically and in 2014, the US surpassed Russia to become the world’s leading producer of oil and gas.
However, this spike in US shale drilling, along with various other factors, has led to a glut in the global oil supply. As a result, prices had dropped 40%, to less than $45 a barrel by early 2015. Except for a brief jump to around $60 a barrel later that year, they have stayed low ever since. Moreover, 2016 got off to an extremely rocky start: In mid-January prices fell below $30 a barrel for the first time since 2000.
Oil production in the US is still in business but it has taken a hit. And while we as consumers benefit from falling prices at the gas pump, unless you live in an area where oil is a major employer, it’s not so easy to see the impact of price drops on employment.
We decided to look at the Indeed data to get a better understanding of the situation.
As the price of oil declines, so do jobs
First, we mapped the decline in the oil price against postings for jobs in the oil industry as a percentage of all job postings on Indeed.
Most significantly, this chart shows the robust impact of the oil price collapse on the oil industry. Since the price began its decline in mid-2014, the share of oil jobs on Indeed has more than halved.
Looking more closely, we can see just how responsive producers are to fluctuations in the oil price. The decline in job postings started nearly in lockstep with the price decline. There was a brief respite in layoffs during the spring of 2015—when the oil price showed short-lived promise of a rebound—only for layoffs to resume with the continuing downward movement of the price.
As for job search, it turns out that job seekers are slightly less responsive to the oil price collapse. Job searches didn’t begin to fall until the start of 2015, despite the fact that the oil price and share of oil job postings had already shown significant decline by that time. Job seekers continued to shy away from the industry throughout 2015, but the overall impact of the oil price collapse was rather less robust when compared to job postings.
Today fewer people are searching for fewer jobs—and there are similarly few signs that this trend will reverse itself anytime soon.
Shale states are going from boom to bust
Times are tough for the oil industry across the US, but three states have felt the effects of the price collapse more than most: North Dakota, Texas, and Pennsylvania. So we decided to take a look at the regional data.
Perhaps the state that benefitted from the shale boom the most—and therefore, has suffered most as a result of the oil price collapse—is North Dakota.
Here we see the share of oil jobs has fallen by two-thirds since price declines started in mid-2014. Although oil postings showed promise in late 2015 with a slight uptick, this is nowhere near a significant recovery of jobs lost in the previous year.
This is what the decline looks like for Texas:
This chart shows a slight jump in job postings after the initial drop in oil prices, and then a hair-raising decline. This was briefly interrupted when prices rose again in mid-2015—only to resume falling once prices dropped again.
In Pennsylvania, we can see the impact of the price collapse on a state with a much smaller, but still significant, oil industry.
Is this the end for the shale boom?
Clearly we are living in a time of change for the oil industry and economies that depend upon it. However, crude oil prices are unlikely to stay this low forever and it seems that oil producers don’t expect them to: As Bloomberg recently reported, extraction companies continued to drill wells throughout the summer of 2015, even if they were not completing as many of them.
This represents an investment in the future: Since drilling costs make up around 40% of the total amount required to construct a finished oil well, once prices begin to rise again these firms will be in a position to quickly complete the wells and rapidly increase production. Last Thursday, crude oil prices hit 13-year lows but on Friday, prices surged 12%—the biggest one-day gain since 2009. That's a large gain but clearly part of ongoing volatility. Analysts expect this up-and-down pattern to continue for some time.
Meanwhile, other industries are reaping the benefits of lower gasoline prices. US car manufacturers notched record sales in 2015, driven largely by consumers capitalizing on lower fuel prices with purchases of SUVs and trucks. Jeep reported a 24% jump in sales and is ramping up production in 2016 to meet increased demand.
But even if prices do stay low longer than oil firms and shale towns would want, not all busts end in disaster. The California Gold Rush of 1840-1855 brought a large influx of people to the state that helped previously small towns such as San Francisco develop more diverse economies even after the boom was over.
Diversified economies are healthier than those that are heavily dependent on a single industry—so while the pain from cheap oil is quite sharp in the short term, good things could yet come out of it.
For more labor market insights, take a look at our latest report: Labor Market Outlook 2016: Uncovering the Causes of Global Jobs Mismatch.