Price plunge puts oil patch jobs at risk

A derrick hand works on an oil rig drilling into the Bakken shale formation outside Watford City, North Dakota.
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A derrick hand works on an oil rig drilling into the Bakken shale formation outside Watford City, North Dakota.

Falling oil prices are giving the U.S. job market a shot in the arm. But if you work in an oil field, your job prospects might not be so bright.

Buoyed by strong consumer spending, the U.S. economy surged ahead at a 5 percent annual rate in the third quarter, according to the latest government estimates. Rising consumer confidence and a stronger job market helped propel growth, helped along by the ongoing drop in gasoline prices that is putting cash back in the pockets of American households.

But falling oil prices aren't helping the economies of states that are major oil producers. For starters, those states rely on taxes from oil revenue to help fund their annual budgets. Many had been counting on oil selling for north of $100 a barrel next year, which means falling crude prices will force higher taxes, spending cuts or both.

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The lower prices will also hurt the profits of domestic U.S. producers and, if oil prices keep falling, could hurt local banks that have loans outstanding to those companies. So far, say analysts, the impact hasn't been widespread. A lot depends on how long oil prices remain at deeply depressed levels.

There also seems to be little evidence that oil producers are scaling back on drilling and developing new fields, at least based on weekly rig counts. But as CNBC's Eric Chemi points out, producers have been slow to respond to falling prices in the past. With little certainty about the outlook for next year, some producers may be gambling that prices will recover and their oilfield bets will pay off. Even when prices are stable, oil production has never been a risk-free way to make a profit.

If oil prices flatten out at low levels, though, some production projects that are no longer profitable will likely be shuttered, forcing layoffs. And based on occupational data collected by the BLS, some oil-producing states are more vulnerable to the employment hit than others.

(For this chart, our list includes BLS industry classifications directly related to oil production, including petroleum engineers, oilfield derrick operators, rotary drill operators, service unit operators, roustabouts, and a classification called "Petroleum pump system operators, refinery operators, and gaugers."

As the leading oil producer in the country, Texas has the most jobs with these industry classifications. But, thanks in part to the painful economic fallout of past booms and busts, the Lone Star State has diversified its economy away from just oil, leaving it less vulnerable to production slumps than some other big oil producing states.

As of November, the unemployment rate in Texas had dropped to 4.9 percent, nearly a full percentage point lower than the national 5.8 percent average. That's despite a drop of 2,300 last month from mining payrolls the broad category that includes oil and gas workers which is still up more than 10 percent from a year ago.

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Those job losses were more than offset by an overall gain of nearly 35,000 new nonfarm jobs across a widely diversified economic base.

That included a booming professional business and services sector (13,500 new jobs), along with continued growth in education and health services (7,200), leisure and hospitality (6,000), manufacturing (4,500) and construction (3,300), information technology (3,300) and government (2,900).

A drop in oil production could jeopardize job prospects for more than just roustabouts. Oil production is a capital intensive enterprise, and even if current production and exploration projects continue, lower oil prices means fewer new ones will need financing.

That would cut into the employment outlook for the Texas financial services industry, which lost 700 jobs last month.

"The small cuts this year could be just a small taste of cuts that could be seen next year as oil prices remain relatively low," Wells Fargo economists Mark Vinter and Michael Wolf wrote in a recent note to clients.

In North Dakotathe second-largest oil producing state, according to the EIA—they're still hiring in the oil patch, where an energy boom has pushed the jobless rate down to just 2.7 percent, lowest in the country. Last month, half of the overall 2,200 gain in non-farm payrolls came from the mining and logging category. Trade transportation and utilities added 900 jobs and construction added another 800, with many of those serving oil production projects.

But the rest of the North Dakota job market remained weak; information technology was flat, and government, finance, leisure and hospitality and professional and business services combined shed 1,400 jobs for the month.

Which means that while Texas may lose more oil patch jobs overall to lower oil prices, North Dakota's economy and job market are much more vulnerable to a protracted crude price slump.