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Payrolls, another Milestone for Oil. Thanks, OPEC

Petroleumworld.com 01 09 2017

Like everywhere else in America, it's payrolls day in the oil patch. And, really, all you can say at this point is:

"Thanks, O ... PEC"

This regular monthly Gadfly round-up of employment trends in the U.S. oil and gas business, with data from November, reaffirms the recovery theme. The most striking chart this time around is this one:

Both Barrels

Payrolls went up in November for both oil and gas extraction and support workers for the first time since September 2014

Extraccion / Support

Source: Bureau of Labor Statistics

Yes, I know it's hard to see that little uptick on both lines over on the right, so here are the data shown in a different way:

Solid Ground

Employment in the U.S. oil and gas industry has clearly stabilized

Source: Bureau of Labor Statistics
Note: Change, year over year, in combined oil and gas extraction and support employment.

As usual, I've calculated a crude estimate of the exploration and production industry's revenue using data from the Energy Information Administration and average benchmark price data from Bloomberg. I've then used data from the Bureau of Labor statistics on payrolls, hours worked and hourly earnings to estimate how much revenue is going to wages:

Steady Earners

Higher oil and gas prices have helped stabilize the wage bill at around 12 to 14 percent of revenue

Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis.
Note: November oil production data estimated from preliminary weekly figures from the EIA. Assumes U.S. natural gas production in November 2016 was flat versus October.

The thing to remember here is that these November figures came before OPEC's agreement injected some optimism into oil prices (and the onset of winter did the same for natural gas). So when the December data come in at the start of February, wages should represent an even lower proportion of revenue.

13% of Revenue

There are still clouds on the horizon. Natural gas prices have dropped sharply so far in January as winter hasn't been as cold as expected. And the broader wage inflation seen in Friday's employment data  adds one more reason for interest rates to rise further, sooner. This puts pressure on emerging markets and, by extension, oil demand .

Plus, of course, it's early days for OPEC and company when it comes to delivering their promised supply cuts. For now, though, that promise is enough to help E&P firms get back to work. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Story by Liam Denning; Editing by Mark Gongloff from Bloomberg News. ldenning1@bloomberg.net

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