November Labour Force Survey Preview: Natural Resource Jobs Stall as Oil Price Gap Grows
Resource extraction jobs fell less in Canada than in the US after 2014, but Canada’s rebound has stalled as the oil price gap has widened
Canadian producers are currently selling oil at prices well below what American companies receive on the global market, in some cases falling short by US$50 per barrel. While a price gap for certain blends of Canadian oil is nothing new, it has widened over the past year and now affects blends that previously hadn’t carried much of a discount. The recent gap has been declared a crisis and has spurred mandatory production cuts by the Alberta government in an attempt to remedy the situation.
The price discount is dragging on the bottom lines of Canadian oil companies, creating potential knock-on effects on industry jobs. The US resource extraction sector — which doesn’t face an oil price gap — offers a comparison that helps shed light on the extent the price discount is affecting Canadian employment trends.
Canadian resource extraction jobs as measured in Statistics Canada’s Survey of Employment, Payrolls, and Hours fell less than similar jobs in the US following the decline in oil and other natural resource prices in 2014. Then, starting in the first half of 2017, Canadian resource sector payroll growth more than matched the rebound in the US.
Overall, the steady oil price discount facing some Canadian producers over this period wasn’t enough to derail employment relative to the US. However, since the oil price gap started widening in the second half of 2017, payroll growth in the Canadian mining, oil, and gas sector has stalled, in contrast with strong growth south of the border.
Canadian extraction employment fared better during the fall and initial rebound in natural resource prices
Natural resource extraction employment covers three subsectors: oil and gas extraction; mining, excluding oil and gas; and support activities. The last category is the largest of the three subsectors, providing services for the other two. (See methodology.) Between 2011 and mid-2014, the US fracking boom helped American resource extraction employment rise more than in Canada, particularly in oil and gas extraction, as well as support activities.
However, faster US growth sharply reversed during the drop in global natural resource prices. All three subsector categories experienced sharper declines in the US than in Canada after 2014. Altogether, they eventually bottomed 30% below their 2014 peak in the US, compared with a 21% drop in Canada. Employment then started to rebound in both countries around the start of 2017, initially at a slightly faster pace in Canada.
A number of factors could have blunted the decline in Canadian resource extraction jobs relative to those in the US after 2014. In the oil sector in particular, jobs in the US might be easier to cut during a downturn than in Canada. For one thing, a lot of the new drilling operations south of the border are smaller in scale than the massive long-term projects required to mine the Canadian oil sands.
In addition, the Canada-US oil price gap narrowed during the lead-up and initial phase of the 2014 oil price crash, then remained fairly stable until mid-2017. The discount may have weighed on Canadian job growth over this period, but it didn’t ultimately derail employment relative to the US.
Growth in Canadian resource extraction jobs has stalled since the price gap started widening, unlike in the US
While the US resource extraction industry still has plenty of jobs to recoup, it’s shown strong momentum recently. In October, payrolls were up 10% from a year earlier. In contrast, September employment in the Canadian sector was down slightly from last November, not long after the price gap started to widen. This pause in payroll growth is concentrated in oil-related jobs. Jobs in other types of mining edged up in Canada over this period. The timing of this stall in the recovery amid strong growth in the US suggests the widening price gap could be contributing to the divergence.
The number of Canadian jobs in resource extraction might have ticked down in recent months, but the decline so far has been modest. The discount on Canadian oil can be volatile, so employers may be holding out for improvement in 2019. Still, if the gap doesn’t narrow much, the industry is likely to keep lagging relative to the US, particularly given that global oil prices have turned down recently.
The Alberta government’s mandate for oil production cuts will probably help narrow the spread. However, this move could also weigh on jobs in the sector if demand for oil workers falls as a result. Some labour market indicators from oil-rich provinces have improved, but several still show little improvement since the 2015 downturn. It would be concerning if the progress registered so far shows signs of reversal in this Friday’s Labour Force Survey.
To track natural resource extraction jobs in Canada and the US, we analyzed payroll employment in Mining, Quarrying, and Oil and Gas Extraction (NAICS 21), from Canada’s Survey of Employment, Payrolls, and Hours (SEPH) and the US Current Establishment Survey (CES). SEPH contains greater monthly industry detail than the more widely covered Labour Force Survey. Given that the publicly available employment data in mining support activities (NAICS 213) does not distinguish between support for oil-and-gas-related mining and other types of mining, we tracked natural resource extraction jobs as a whole.