As the demand for crude oil is slated to remain subdued for the foreseeable future amid the pandemic, the US shale industry may be heading for some very tough times ahead. According to a recent Deloitte report, America’s oil exploration and production industry has already lost over 100,000 jobs between March and August, with another 35,000 job losses downstream. Many of those jobs are not slated to return until next year at the earliest, while some jobs could be gone forever.
The Deloitte report found that rate of job losses in the US oil industry has been the fastest on record given the sudden and unprecedented effect of the pandemic. In fact, oil production in Texas fell by a staggering 13% between March and May, compared to a 13.7% drop over a span of 18 months during the last oil crisis. Such a sudden and rapid contraction of oil production has resulted in an equally accelerated employment decline, along with an increasing number of bankruptcies.
Given that the oil industry has a tendency to succumb to the cyclical variations of the economy, job losses during a time of contraction are common. However, this scenario is turning out to be significantly different. The report’s statistical analysis on market and employment data found that up to 70% of oil industry jobs lost during the pandemic may not come back by the end of 2021 even in a business-as-usual scenario.
Although that is certainly a grim outlook for America’s oil industry future, many analysts actually do not expect 2021 to be business-as-usual. If the price of oil remains as subdued as it is right now, only about 30% of those 107,000 lost upstream jobs may be recouped by the end of next year.
The problem is though, that two years is a long time for many people employed in a cyclical industry such as the oil sector. Many of those unemployed workers will go on to find jobs in other industries such as renewable energy in solar, wind, and other generation technology, meanwhile others will join the ever-expanding list of pandemic-induced permanently unemployed Americans. International Renewable Energy Agency director general Francesco La Camera noted that a lot of oil workers had already begun the migration into the growing sector of renewable energy, especially project managers, engineers, and construction workers.
In the meantime, a lot of European oil companies have been adjusting their business models to better coincide with a world that is increasingly favouring green energy. Although such a transition calls for a change in worker’s skills and retraining, the growing demand for renewables will fuel urgency for change even further. Albeit the US oil industry has not been too keen on a green agenda thus far, it will eventually have to embrace the change – if not for political reasons, then economic.
Information for this briefing was found via Deloitte. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.