The Guest Blog

Schork Oil Outlook: Recovery in Unlikely Places?

Stephen Schork, Editor, The Schork Report

Last Monday, Larry Summers, chair of the National Economic Council and quasi-architect of Pres. Obama’s recovery plan, told CNBC that that past snowstorms had “distorted [payroll numbers] by 100,000 to 200,000 jobs” and that it would be “very important to look past whatever [Friday’s] figures are to gauge the underlying trends.” A scary statement by implication, and analysts braced for the worst.

Of the analysts who supplied their estimates to Bloomberg before Monday, the average estimate was a 53.7K drop in payrolls. Of the analysts responding on or after Monday, the estimate clocked in at a 72K drop.

With this in mind, on Friday, the Bureau of Labor Statistics (BLS) released the payrolls figure and it was… mild in comparison.

The unemployment rate stayed fixed at 9.7% while payrolls dropped by 36K. Regular readers will know the severity with which we treat the monthly numbers (, February 8), so we were unimpressed. We are simply not drinking the Kool-Aid that losing only 36K jobs is a good thing. It’s bad news, and until the economy is actually adding jobs we will be on guard for a double-dip recession.

However, we found a unique counter-point from our friend, Mr. Antoine Halff at Newedge, who raises the idea that the American economy (and OECD countries as a whole) will start to actively encourage a return of manufacturing jobs.

Mr. Halff proposed the idea as a possible engine for renewed oil demand growth, but it makes sense outside that context. A weak dollar combined with high unemployment rates and increased competition for imports from China and India create a perfect storm to resume manufacturing and exporting goods. A recovery from creating products instead of borrowing debt? What a novel idea, we thought, but the more we examine the data the more Mr. Halff’s idea makes sense.

For instance, in January 2010 (the latest date for which all data is available at this level), the number of workers involved in petroleum and coal product manufacturing rose by 0.9% and is now 0.2% above the 2004-08 timestep. Part of this is due to the number of workers at petroleum refineries, which rose 0.4% and is now 6.67% above the 2004-08 timestep.

In a similar vein, jobs involved in the manufacture of mining and oil and gas field machinery are 13.7% above the 2004-08 timestep, i.e., in these sectors we are better than we were during much of the boom years.

It’s not all rosy, though: jobs in natural gas distribution (on the downstream) are usually unchanged between December and January, but this year fell by a large 10.7%. What’s worse, the weekly hours worked remains effectively unchanged and the hourly wage is down 8.3% year on year. This could see a rebound as the falling price of natural gas increases demand, even going so far as to displace coal.

Meanwhile, January saw a 0.3% drop from December in jobs in fossil fuel electric power generation. A drop is normal due to winter demand receding but seasonally, 2010 is much better than expected; the historical drop between months is double, at 0.6%. This is bullish for the coal and natural gas markets — i.e., power plants are keeping on more workers.

Moving on to less specific sectors, where some data is available for February, the number of jobs in oil and gas extraction fell by a seasonally small 0.5% in February, negligible given the extreme weather conditions.

More importantly, jobs are now 19.7% above the 2004-08 time-step and in the latest weekly hours data available, workers in January put in a record 39.9 hours worked per week, 2.2% higher than the 04-08 time-step.

Mining saw a 0.8% increase in February and is now 7.1% above the 2004-08 time-step.

Meanwhile, the manufacturing sector as a whole saw a 0.009% or 1K increase in jobs. In the past we have dismissed the recovery in the manufacturing sector due to a historical super-trend lower, with an expected decline of 0.1 M jobs per year. But if Mr. Halff is vindicated, we could see a break from the status quo.

It is too early to call a break from the previous century’s switch from manufacturing to services. That said, will be closely following this very exciting time for manufacturing growth, and the inherent increase in demand for energy.


Stephen Schork is the Editor of and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.

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