Thousands of workers in the oil and gas sector lost their jobs in February, new data shows, with the industry fearing greater blows as the worldwide oil glut continues and storage capacity runs out.
The drop in oil and gas industry jobs represents a negative spot in an otherwise positive U.S. government labor report released Friday. While the Bureau of Labor Statistics said there were still more than 600,000 of such jobs, energy analysts warn that the layoffs aren’t over.
The oil glut, largely driven by American production, has sent prices down by more than half since last summer, helping consumers at the gas pump but wreaking pain on the energy industry.
“I don’t think we’ve reached the bottom by a long shot,” said John Kilduff, a founding partner at Again Capital in New York. “There’s a wall of oil that continues to build and build and production keeps going up and up.”
Where to put the excess oil might turn into a problem. Storage tanks are nearly 70 percent full in the Midwest, according to the Energy Information Administration, as traders hold on to the oil to sell at futures prices higher than they can get on the front end.
If affordable storage space runs out and there’s a need to get rid of the oil at a discount, then “you have a point where the price of oil conceivably could fall dramatically” below its current low level, said Tom Kloza, senior energy analyst for the Oil Price Information Service.
A further plummet in prices would be a huge blow to energy companies, and Kloza said there were estimates that storage tanks could reach capacity in April.
Central to the bottleneck is Cushing, Okla., the nation’s largest and most important oil storage hub. Storage tanks are about 67 percent full in Cushing, according to the Energy Information Administration, and taking on more oil every day.
Kloza said oil also could be stored at sea on tankers, but at some point drillers might be forced to cut production.
American oil producers are in a standoff with their competitors from the Middle East, with both so far refusing to cut production despite the low global prices. Saudi Arabia is betting it can outlast U.S. shale oil drillers, while both keep pumping more than the world demands.
There are signs of U.S. industry weakness, including the layoffs, in the new labor report.
Jobs in oil and gas extraction, such as petroleum engineers and rig laborers, fell by 1,100, to 198,000. The bigger hit was in field support services. “Support activities for mining,” which the Bureau of Labor Statistics describes as oil and gas support services, was down some 7,400 jobs, to 440,000.
The number of American drilling rigs in operation fell by 64 in just the past week, according to Friday’s rig count compiled by the oil-field services company Baker Hughes. It stands at 922, the lowest in almost four years and 36 percent fewer than a year ago.
U.S. oil production keeps rising nevertheless, as companies grow more efficient and are able get more out of each rig, and as they focus their efforts on the most productive areas.
Energy analyst Kilduff said he expects to see U.S. oil production continue growing through this year.
He said it wasn’t clear how the storage issues would play out, since the boom in U.S. shale drilling had created a world not seen before.
“We have experience with shortages,” he said, “not so much for this surfeit.”