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posted on 28 June 2015

The Response Of Employment To Changes In Oil And Gas Exploration And Drilling

by Kansas Fed

During early summer of 2014, oil prices exceeded $100 per barrel, and many industry analysts expected prices to remain at that level for some time. However, oil prices began to decline in July, and were down more than 50 percent by the beginning of 2015. Although the response was delayed by a few months, exploration and drilling for oil and gas dropped significantly, with rig counts down 49 percent by the end of April 2015. Exploration and drilling may decline further depending on when oil prices settle and for how long.

In energy-producing states, exploration and drilling in the oil and gas sector - and economic activity more broadly - are vulnerable to energy price declines, with smaller and less-diversified states expected to be the most exposed. The net effects of price declines are not obvious. When oil prices fall, consumers likely have more money to spend on other goods and services. However, oil- and gas-producing states have a larger share of employment in the oil and gas sector, and falling oil prices can thus directly decrease employment. For example, when energy prices collapsed in 2008-09, employment in energy-producing states fell, partially reversing the strong performance of those states through the early stages of the Great Recession. In subsequent years of the recovery, growth in the global oil supply - mostly from U.S. production - coupled with declining global demand for oil, led to the price of oil falling by over 50 percent in the second half of 2014, with potential negative effects on oil- and gas-producing states.

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