The Oil Industry Downturn Turns 2. What's Next?

It was Friday, June 20th, 2014. That’s when oil industry downturn all began. In the news that day, Ukrainian troops clashed with pro-Russian separatists for a second consecutive day, Apple was getting ready to launch the smart watch, the Dow closed up 26 points to 16,947 and oil closed at $107.95/bbl. That was the day that oil had peaked. Four weeks later on Thursday, July 31st, the price of oil collapsed dropping over $6 closing at $98.23/bbl. The price would continue to fall for another year and a half when it hit bottom at $26.68/bbl in January of this year.

Rig Count Drops by 80%

The North American rig count was still in an upward trajectory during the summer of 2014. It was approaching its all time high on September 26th when it peaked at 1,931 operating rigs. As oil continued to decline, rig operators started to shut down rigs. There are many factors that help determine the price of oil. The strength or weakness of the US dollar, supply and demand, geopolitical forces and speculation to name a few. There is one primary driver to the rig count and that is the price of oil and natural gas.

With the exception of a few minor “bumps”, the number of operating rigs in North America has been in a free fall since the summer of 2014. Since September 2014, the rig count has fallen by almost 80% to a low of 404 operating rigs. The impact to the oil and gas industry is devastating when you shut down 1,527 rigs.  The good news is that since January of this year, we have seen a rebound in the price of oil from lows of $26.68/bbl to a peak of $51.23/bbl hit in June and as a result we have seen a 15% increase in the number of operating rigs.

Signs of Life

As the oil industry downturn turned 2 years old last month, many in the industry are still feeling the pain and are starting to wonder if this is the 1980’s all over again or are we starting to see a rebound? Historically speaking, this is the longest oil industry downturn we have experienced in the past 30 years. The previous record holder lasted 595 days which started September 15, 1997 and didn’t end until April 23, 1999. If the rig count bottomed out on May 27, then officially, this downturn lasted 609 days. We are starting to see an improvement in our industry as rig workers are starting to go back to work primarily due to a 15% increase in the rig count since May.

According to the Baker Hughes North American Rig Count, which supplies the most recent data, the rig count bottomed out 11 weeks ago. The consensus of industry professionals we talk to daily is that things will start to pick up after the election.

Perception may not be reality as rig operators are hiring right now but many workers don’t see it.  Job vacancies are not being advertised as much since there are a lot of unemployed rig workers available for work.  Instead of running ads, employers simply hire displaced workers.

Build it and They Will Come
As we discussed in a previous article, look to the rig count and jobs will follow. The worst should be behind us as inventories decline and global demand increases. If the trend continues, by next spring, we should feel the full effects of a rebound.

About the Author

Tim Cook is the Sr. Manager for the midstream/upstream division of PathFinder Staffing, an oil and gas recruiting agency located in Houston, Texas. For more information about our services, visit our web site at www.PathFinderStaffing.com or call us at (281) 858-7325.