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Running head: EFFECT OF FALLING CRUDE OIL PRICES 1
Effect of Falling Prices in the Louisiana Crude Oil Industry
By
LAUREL LATTIMORE, MBA CANDIDATE
A paper submitted in partial fulfillment of the requirements for the degree of
Master of Business Administration
INDIANA WESLEYAN UNIVERSITY
June 2016
I have read and understand the plagiarism policy as outlined in the syllabus and the sections in
the Student Bulletin relating to the IWU Honesty/Cheating Policy. By affixing this statement to
the title page of my paper, I certify that I have not cheated or plagiarized in the process of
completing this assignment. If it is found that cheating and/or plagiarism did take place in the
writing of this paper, I understand the possible consequences of the act/s, which could include
expulsion from Indiana Wesleyan University.
EFFECT OF FALLING CRUDE OIL PRICES 2
Table of Contents
Executive Summary……………………………………………………………………………….3
Research Purpose……………………………………………………………………………….....4
The Problem…………………………………………………………………………….....4
Research Objectives…………………………………………………………………………...…..5
Limitations……………………………………………………………………………...…5
Significance of the Study………………………………………………………………………….6
Significance to Researcher………………………………………………………………...7
Significance to Oil Companies……………………………………………………………7
Significance to Employees………………………………………………………………...8
Broader Implications: Significance to U.S. Economy……………………………………8
Broader Implications: Significance to World Economy……………………………….…8
Industry Overview…………………………………………………………………………….…..9
Characteristics……………………………………………………………………………10
Identification and Discussion of Key Issues……………………………………………………..11
Key Issues……………………………………………………………………………..…11
Key Questions……………………………………………………………………………11
Methodology……………………………………………………………………………………..12
Information & Literature Review………………………………………………………………..13
Economic Review of Oil Prices………………………………………………………….14
Strategy and Policy of Louisiana’s Oil & Gas Market…………………………………..16
Ethics……………………….…………………………………………………………….18
Human Resources………………………………………………………………………..20
Applied Management Theory……………………………………………………………21
Accounting vs. Economic Implications of Labor………………………………………..22
Global Implication of Industry Threats…………………………………….……………22
Analysis of Key Issues…………………………………………………………………………..23
Economics of Review of Oil Prices......…………………………………………………23
Strategy & Policy Review……………………………………………………………….24
Ethics…………………………………………………………………………………….26
Recommendations & Conclusions………………………………………………………………28
Conclusion………………………………………………………………………….……30
References………………………………………………………………………………………..32
Figures……………………………………………………………………………………………35
EFFECT OF FALLING CRUDE OIL PRICES 3
Executive Summary
On 96.5 FM KPEL, Senator Ted Cruz stated, “Pulling back the EPA regulators…will
bring back the oil and gas industry” (NewsTalk, 2016). When asked what he would do as
president to revive jobs in the oil and gas industry for Louisiana, Senator Cruz responded, “And
I’ll tell you, when it comes to oil and gas, we are going to open up new federal lands and open up
new federal waters so that we can develop the incredible resources we have. And we are going
to stop the federal government from being a barrier to developing those resources” (NewsTalk,
2016).
Oil and gas (referred to as oil, oil and gas, gasoline, or crude oil hereafter) workers in the
state of Louisiana have lost jobs, in part because of the reduced price level of gasoline in the
United States. This paper seeks to identify if jobs were lost and to understand how much of the
unemployment in the oil and gas industry is attributable to the price of gasoline. In order to
understand the effect of a reduction in the price level of gas, understanding how the price of gas
is derived must first be understood. The research conducted will either prove that there is a
correlation between oil prices and employment in the industry or this paper will conclude that
there is no relationship between oil prices and the level of employment in the oil and gas
industry.
While exploring and uncovering this relationship, environmental factors will be
discussed. The global implications and factors related to the price level of gasoline will be
presented throughout this paper. Essentially, this paper will seek to identify a relationship
though the process of elimination. Exploring other possible causes of a reduced gas price must
also be taken into consideration to formulate an opinion about the effect of gas prices on
employment in the oil and gas industry.
EFFECT OF FALLING CRUDE OIL PRICES 4
Research Purpose
The purpose of conducting this study is to understand the real effects of falling gas prices
on an economy in the United States. The oil and gas sector represents a significant contribution
to the economy of Louisiana. The health of the economy in Louisiana could be negatively
impacted by a decrease in the price of oil. The purpose of this paper is to understand the factors
that determine oil prices and the implications of a decrease in the price level of oil, particularly
the negative impact on employment in the oil and gas industry.
The Problem
Fox8 Live news, WGNO (ABC affiliate), WWL-TV (CBS affiliate), and WDSU (nbc
affiliate) have all purported that the drop in oil prices have caused a loss of jobs in the oil and gas
industry for the Gulf-states region of the country. The Gulf-states are comprised of Florida,
Alabama, Mississippi, Louisiana, and Texas. The media also portrays the idea that the fall in oil
prices are good for consumers and good for the economy because consumers have more
discretionary income. However, this extra discretionary income comes at a price: oil workers
lose jobs. A study aimed at understanding consumers spending changes once the subjects knew
a vehicle loan was going to be paid off in the near future concluded, “The analysis presented in
this paper shows a significant consumption response to the repayment of vehicle loans. The
estimates imply that a 10% predictable increase in discretionary income corresponds to a 2% to
3% increase in nondurable consumption” (Stephens, 2008, p. 242). Economists hope that an
increase in discretionary income will translate into economic stimulating effects.
Local broadcasting stations for the New Orleans, Louisiana metropolitan area assume that
workers in the oil and gas industry have lost jobs due to lower gas prices. This paper is designed
to quantify the number of jobs lost and to understand the amount of money consumers are saving
EFFECT OF FALLING CRUDE OIL PRICES 5
since the fall in oil prices began. Ethical implications must be explored to provide an
understanding of which group is better off; consumers nationwide or unemployed oil and gas
workers in Louisiana.
Research Objectives
In essence, this paper will uncover if the loss of jobs is justified by the economic
stimulating effect experienced within Louisiana and nationwide. There are many accounts
circulating about the depression of the oil industry caused, or at least purported to be caused by
falling oil prices. This paper will analyze the depression of the oil and gas industry and seeks to
understand the impact of falling gas prices on the economy and unemployment. To understand
the relationship between the price of oil and unemployment in oil and gas, the factors that
determine the price of crude oil will be examined. All of the research conducted throughout this
study was conducted to see if a direct relationship exists.
Limitations
The time and resources required to study the entire country is not available, therefore, the
focus of the study is limited to the state of Louisiana because the researcher lives in Louisiana,
more specifically in Southeastern Louisiana. The perspective of this study may come from the
viewpoint of Southeastern Louisiana residents, since many resources that will contribute to this
paper have been collected in this region of the state. However, statistics offered by the various
agencies and departments within and affiliated with the state of Louisiana’s government, will
cover the entire state.
Additional research should be conducted to understand the full economic effect of
decreased gas prices on the entire U.S. economy. The oil and gas industry in other oil producing
states could be examined. Research in this area would benefit organizations operating in the
EFFECT OF FALLING CRUDE OIL PRICES 6
industry and the organizations that are indirectly affected by decreases in gas prices.
Governments could benefit from research in this arena nationwide because they would be better
able to understand the financial impact as workers rely on unemployment wages and government
assistance.
Furthermore, this study was designed to understand if there is a direct relationship
between the fall in gas prices and a fall in employment in the industry but does not attempt to
analyze the relationship between an increase in gas prices and the number of workers employed
in the industry. One might assume such a relationship exists if the study proves a direct
relationship for the opposite. Many factors were used to formulate an opinion about the
relationship between falling gas prices and unemployment. These factors were analyzed
carefully before coming to a conclusion. In order to formulate a conclusion about a rise in
gasoline prices and employment in the oil and gas industry, extensive research would need to be
conducted. The economic conditions and ethical implications of an increased price level for gas
would have to be understood to formulate any opinion about whether or not a relationship exists.
Significance of the Study
The decrease in oil prices has many implications for organizations involved in the oil and
gas industry. An excerpt by Stephen Waguespack (2015) explains,
The volatility of this interconnected, global economy has become painfully
apparent in the past year for Louisiana’s oil and gas sector. As growth slowed in
countries like China, demand for oil and gas has fallen. At the same time, leaders
of the Organization of Petroleum Exporting Countries [OPEC] made a decision to
flood the oil market and maintain their market share, even though this drives
EFFECT OF FALLING CRUDE OIL PRICES 7
prices down everywhere. As of August 2015, the price of oil hovers around $50 a
barrel-half the price it was just one year ago. (Waguespack, 2015, p. 86)
The price of oil is felt nationwide because consumers save money. The price of gasoline is half
of what it was in 2013 and early 2014, a factor that likely influences consumers’ travel and
spending habits. The economic effects nationwide will be explained and examined later in this
paper with an emphasis on how ethical the current gas prices are. While exploring the ethicality
of decreased gas prices, the causes of the decrease must also be presented.
Significance to Researcher
This topic is important to the researcher because neighbors are affected. The topic is
relative because the researcher sees the depression fellow residents are in due to the economy.
The question remains in the minds of some: Is it fair for me to save at the pump when entire
families are suffering because the only way they’ve made income for generations is through the
oil and gas industry? Still, this thought has its own limitations. Like any other market, the oil
and gas industry in Louisiana and particularly Southeast Louisiana, because of its proximity to
the Gulf of Mexico, the condition is temporary. The price of oil will eventually rise.
Significance to Oil Companies
The implications for Shell, Exxon, Chevron, BP and other oil producing multinationals
(MNE’s) operating in Louisiana and it offshore regions is serious. Recommendations can be
made based on the causes identified. The purpose of this study is to understand if there is a
correlation between the falling gas prices and a loss of jobs in the Louisiana oil and gas industry.
The results of this study will help oil companies that operate in the Louisiana state territory to
prepare for economic downturns in the oil and gas industry. The crude oil reduced price level
speaks directly to the threats the MNEs are experiencing.
EFFECT OF FALLING CRUDE OIL PRICES 8
Significance to Employees
A major category of stakeholders are the employees of the above mentioned corporations,
particularly if hours are cut or workers are laid off. The loss of jobs is the central focus of the
paper. To put this study in context, United States represents only one country that has a
significant demand for gasoline. All of the industry conditions uncovered in this paper could
apply to other oil producing countries. Any recommendations provided later could also
potentially be put into practice in other parts of the world if the proposed solutions work.
Broader Implications: Significance to U.S. Economy
This paper is limited to one region of the United States. The Louisiana oil and gas
industry is part of the larger U.S. oil and gas industry. Any proceeds generated by the oil and gas
industry in the state of Louisiana will be counted toward total GDP for the U.S. Many aspects of
this paper could be applied to the larger industry but limitations are going to exists because each
state has its own level of contribution to the oil and gas production of the country as a whole.
The individual state contribution level could range from no oil or gas production, to very little, to
having the most oil in the country. Neighboring states of Louisiana also produce oil and gas.
Factors that do not exist in Louisiana could be in play in these states, therefore, it is not safe to
assume that what will work for Louisiana, will work for Texas for example.
Broader Implications: Significance to World Economy
Global factors are effecting the price of oil. Earlier, Waguespack (2015) alleged that the
oil producing export countries (OPEC) is responsible for the decrease in oil prices because the
OPEC participating countries flooded the market with extra supply to protect their own interests.
Such allegations will be examined later in detail to determine if what Waguespack claims is true.
One theme that transcends borders is the destruction of the environment in areas where oil
EFFECT OF FALLING CRUDE OIL PRICES 9
companies operate. Most of the literature available today about the oil and gas industry is aimed
at examining the stakeholders of oil and gas extraction. Land is lost, reserves are depleted, and
wildlife is negatively impacted in most cases caused by oil and natural gas spills. Louisiana has
been a victim of the Deepwater Horizon oil spill in the Gulf of Mexico that occurred in 2010.
Residents of the Amazon have fallen victim to crude oil spills in their backyards, another global
implication of oil drilling discussed later.
Industry Overview
Crude oil is the of this paper as crude oil is the substance used to make gasoline for
internal combustion engines in most cars driven today. Crude oil is derived from organic
material buried beneath the earth’s surface millions of years ago. Figure 1 defines some useful
terms related to the production of crude oil and will be helpful to understand terms that will be
used throughout this paper (See Figure 1, p. 36). Crude oil is made up of organic materials that
are complex in composition.
In Louisiana, there are many residents that are employed in the production of oil and oil
related products such as petrochemicals and plastics. This paper focuses on gasoline prices
therefore the production of crude oil will be explained in this section. Gasoline according to the
U.S. Energy Information Administration (EIA) is a petroleum based product and 19 gallons of
gasoline are produced from every 42-gallon barrel refined (2015, para. 1). The oil production
and refining process is particularly important to the content of this paper because the central
focus is on the price of gasoline. The state of Louisiana represents a significant portion of the oil
industry in terms of extraction and refining. Louisiana represents a major portion of crude oil
extraction because of its location. Situated on the Gulf of Mexico, Louisiana is engaged in off-
EFFECT OF FALLING CRUDE OIL PRICES 10
shore drilling. Off-shore drilling also contributes to the amount of crude oil extracted for the
state.
Louisiana’s shoreline and natural hurricane barriers have been impacted by decisions the
U.S. Army Corp of Engineers (UACE) has made to create levees. Oil companies created
passage ways through wetlands to build oil platforms. While researching Louisiana oil and gas,
one will find a plethora of information related to the destruction of marshes in Southern
Louisiana, which will be explored further in a later section of this paper. Depletion of natural
resources will cause some level of damage, so Louisiana is not unique in this respect.
Characteristics
Hallmark characteristics of the oil industry includes an ever-increasing demand for oil to
heat homes, fuel cars, create plastics, and others uses. The “MarketLine” report for Exxon Mobil
helps to identify the industry. Exxon Mobil produces fuels for cars, watercraft, aircraft, fluids,
lubricants, plastics, and many other products. Exxon engages in exploration, extraction, refining,
storage, and the marketing of oil and natural gas (“MarketLine,” n.d., p. 4). Oil and gas
companies operate all over the world in many instances. Whether this is due to the need to
explore all over the world or sell products all over the world, oil companies are usually
multinational, large, and operating in an oligopolistic market.
The findings of this paper will be useful to managers and leaders in the oil and gas
community because indicators that signal economic downturn will be uncovered. The possibility
of a correlation between gas prices and the level of employment in the industry will help
managers understand more about how employment will be affected. There will at least be a case
study available to account for the current conditions of the oil and gas market. One can use this
study to identify similarities that could help predict the severity of another downturn in the oil
EFFECT OF FALLING CRUDE OIL PRICES 11
industry. Furthermore, this study will prove useful to managers in Louisiana since the study
focuses on this state and its environmental characteristics.
Identification and Discussion of Key Issues
Key Issues
The ethicality of lower gas prices is one of the topics to be explored throughout this
paper. If the decrease in gas prices is ethical, this study will conclude that the savings
experienced nationwide for every consumer exceed the severity of lost wages of workers in
Louisiana. Since various sources of oil are used to fuel the entire U.S., it may prove beneficial to
understand the savings one Louisiana resident experiences against the lost wages of an oil
worker. The greatest good can be measured to determine if the reduction in oil prices is ethical.
The ethicality of OPEC supplying more oil than necessary, an allegation uncovered earlier, will
be examined.
Key Questions
Is drilling ethical? This question was chosen because the researcher has found that most
of the sources dedicated to oil and gas was comprised of environmental topics. There is a
constant struggle between oil companies and environmental groups. The environmental groups
have an agenda to preserve the Earth while oil companies have a motive to make revenues and
operate efficiently. Although the environmental side of oil and gas has little to do with
employment and gas prices, the very nature of oil extraction is damaging to the Earth.
Controversy surrounds the use of fracking fluid and environmentalists demand to understand
what fracking fluid is made of. The environmental side of oil and gas is so significant; it can’t be
avoided. Saving the environment is a source of tremendous cost for oil companies as they are
pressured to reduce greenhouse gas emissions. Alternative fuel use may be a topic to explore if
EFFECT OF FALLING CRUDE OIL PRICES 12
the researcher finds the use of alternative fuels has a financial impact on oil companies.
Alternative fuel furthers the interest of environmentalist groups at the expense of oil companies.
This paper seeks to identify if growth in alternative fuels could contribute to laying off workers
in the oil industry.
How is the state budget affected when workers are laid off? Do transfer payments
increase when gas prices are low in areas where many are employed in the oil and gas
industry? When workers are laid off, they generally seek other employment and draw on
unemployment funds. To understand how this affects the state government and its budget,
questions must be answered that relate to how fast a worker will find new employment. Along
with this, expectations of such workers must be examined to understand if workers are laid off
temporarily, permanently, or if they are simply underemployed. Full time workers may have
hours cut to reduce their employment status to part time. The aim of this paper is to provide a
recommendation for state governments when dealing with unemployment in this sector.
How is the price of gasoline figured? This million-dollar question is at the heart of this
paper. Without understanding how gas prices are determined, the savings experienced and
bottom line for oil producers could not be understood. The price of gasoline has many factors in
addition to formulas to determine the price. This paper will cover the factors that have to be
taken into consideration. The paper will also rank these factors in terms of importance. This
paper seeks to identify the three largest factors on gasoline prices. Gasoline prices have two
components: the price of one barrel of oil and how this translates into price per gallon.
Methodology
To answer questions about employment levels, the Louisiana Workforce Commission’s
website will be a valuable resource because it holds figures and data related to recent changes in
EFFECT OF FALLING CRUDE OIL PRICES 13
employment. This information is broken down by sector. The national oil and gas sector data on
the Bureau of Labor Statistics (BLS) website will helpful to get a national perspective and to
determine if the unemployment experienced in Louisiana is indicative of what is occurring
nationwide.
Environmental questions will be answered through videos dedicated to the subject and
articles discovered in OCLS. The researcher interviewed a tour guide of Honey Island Swamp
for details related to what Louisiana was like before oil and gas exploration. Questions related to
figuring the price of oil by the barrel and per gallon will be answered by reading a text book
dedicated to how the price of oil is derived. OCLS provides articles that offer additional details
on the calculation of oil prices by the barrel and by the gallon.
The overarching methodology to gather research to answer the questions presented are to
read, watch, and listen to the sources picked out previously through the production of a working
bibliography. Charts, graphs, tables, and pictures will be shared to help readers visualize the
concepts presented in this paper. Interviews have either been conducted or are scheduled to get
personal perspectives and accounts on the current employment landscape for Louisiana’s oil and
gas workers.
Information & Literature Review
Prior to conducting an analysis of the research collected in order to formulate an opinion
about employment in Louisiana’s oil and gas industry, the history of the oil and gas industry in
Louisiana must first be understood. “The Jennings Oil Company contracted with Heywood
Brothers and Dobbins to drill two exploratory wells, each to a depth of 1000 feet, in the hope of
finding oil…” (LOGA, n.d., para. 3). The story continues on, “Nothing happened. The well was
bailed again. Finally, a 4-inch stream of oil came gushing out of the well, spewing oil over 100
EFFECT OF FALLING CRUDE OIL PRICES 14
feet into the air” (LOGA, n.d., para. 9). The birth of the oil industry is interesting, but even more
relevant is the occurrence of jobs lost in the oil and gas industry today. The optimism of
explorers back in 1901 is not shared by oil and gas workers that have been laid off recently
because of diminished crude oil prices.
Economic Review of Oil Prices
Prior to delving into what experts conclude about crude oil, crude oil must be defined.
The (EIA) defines crude oil:
Crude oil was formed from the remains of animals and plants (diatoms) that lived
millions of years ago in a marine environment before the existence of dinosaurs.
Over millions of years, the remains of these animals and plants were covered by
layers of sand, silt, and rock. Heat and pressure from these layers helped the
remains turn into what we now call crude oil. (“EIA,” 2015, para 1.)
The EIA’s definition of crude oil coincides with the researcher’s understanding of crude oil and
will be adopted as an acceptable definition of the term. Crude oil is the main source of gasoline
consumed in the United States and will be the focus of this paper as the research explains the
correlation between crude oil prices and employment in the oil and gas sector.
Supply. Crude oil prices are derived through the factors that will be continually discussed
in this paper. Economics plays a major role in what the price of a barrel of crude oil will be and
the supply side of the law of demand with regard to crude oil prices has been best described by
chapter nine of Understanding the World Economy (2002) when the author explains, “…oil
reserves are a direct outcome of exploration activity, and the higher the price of oil the more
supplies will be looked for and brought on stream. The world’s oil supply is thus not fixed - it
increases with its price” (p.177). The author continues onto explain the implications the going
EFFECT OF FALLING CRUDE OIL PRICES 15
price of one barrel of oil has on what types of reserves will be explored when the author
explained:
This principle is true even of one given reservoir: how much oil is there, in
economic terms, depends on how far it pays to extract the oil from all the other
junk that surrounds it: water, mud, gas, etc. If it is too fragmented, too messy a
cocktail, then it does not pay to pump up much other than the purest, most
accessible deposit. But if the price of oil increases, it becomes worthwhile to
extract more from that same source. What counts as the total of commercially
viable reserves in the world, therefore, immediately increases as oil prices
increase – the economic boundary of all existing reservoirs shifts out [and this
does not include all the other unknown reservoirs that now become worth looking
for].” (p. 177) (See Figure 4, p. 39)
Essentially, this work is designed to help readers understand that different methods of extracting
oil out of the ground will be employed based on the going price of a barrel of crude oil. When
the price is low, minimally invasive methods are used. When the price is comparatively high,
major operators and independent operators (defined later) will be able to afford to use costlier
methods of extraction. Alquist and Guenette (2014) supported the same conclusion presented
when they stated, “This production increase has been made possible by the existence of
alternative oil-recovery technologies and persistently elevated oil prices that make these
technologies commercially viable” (para. 1). Oil reserves measured by BP in the year 2000
revealed that the Middle East has the highest concentration of proven oil reserves as presented in
Figure 4 (See p. 39).
EFFECT OF FALLING CRUDE OIL PRICES 16
Demand. The aforementioned effects of supply are useful to understand the supply side
of the law of demand with regard to oil prices. The demand side must also be understood to have
a holistic understanding of what drives oil prices.
Understanding the World Economy (2002) presented:
As world incomes, trade and travel have increased at an accelerating pace, so has
the consumption of all energy supplies – from 7.7 billion barrels of oil equivalent
(bboe) in 1925 to around 64.2 bboe in 2000. Of this, oil consumption has
increased from approximately 1 bboe to 25.7 bboe over the same period. That is,
the actual growth of the world economy has been fueled mostly by oil [and
recently, by natural gas – a related energy source]; demand for other forms of
energy has changed, by comparison, relatively slowly. (p. 170).
The demand for oil can change for a limited number of reasons. Keat, Erfle, and Young
(2013) call these reasons the non-price determinants of demand. The non-price determinants of
demand are based on changes in consumers tastes and preferences, a change in consumers’
income, the price of related products, the future expectations of buyers, and the numbers of
buyers that exist in any market (p. 41).
Strategy and Policy of Louisiana’s Oil & Gas Market
Director of North Louisiana for the Louisiana Oil and Gas Association (LOGA), Ragan
Dickens (2016) explained that operators, both major and independent, have reduced costs as a
result of decreased crude oil prices (personal communication, June 15, 2016). A major oil
operator is defined by “U.S. Legal” (n.d.) as “In the Oil and Gas industry, Operator means the
individual, company, trust, or foundation responsible for the exploration, development, and
production of an oil or gas well or lease….it is the oil company by whom the drilling contractor
EFFECT OF FALLING CRUDE OIL PRICES 17
is engaged” (para. 1). An independent operator would be a smaller operator that only functions
in part of the entire extraction and production process rather than the entire production process
like major operators. Dickens (2016) explained that major operators explore, extract, refine,
store, and market oil and that major operators are involved in the entire oil production process
from finding reservoirs, to selling gasoline in retail gasoline markets. He further explained that
independents all over Louisiana are either filing bankruptcy or are merging with larger operators
as their ability to cut costs diminish. The single most effective way to cut costs is through
cutting the workforce. Dickens (2016) concluded that independent operators usually explore for
oil and extract oil from the ground but pass on the rest of the production process to major
operators or independents engaged in the downstream (refining) portion of the production
process. He termed this first part of crude oil production as upstream activities. Dickens also
purported that operators are asking their suppliers to reduce their prices and that a continual push
to lower costs at all levels of the oil and gas industry has caused a depression in the market as
market participants are not able to pay existing rates for service and materials used in the
production process. Operators are asking for 20-30% reductions in rates.
When asked if the use of hydraulic fracturing (fracking) was too expensive when the
price of crude oil is too low, Dickens (2016) responded that hydraulic fracturing is a relatively
expensive part of the oil production pie. This helps to prove the assumptions revealed earlier in
the supply side of the law of demand: When oil process are low, costlier methods of extraction
are abandoned, thereby lowering total supply. The most important direct quote obtained from
Dickens is when he was asked if there is a relationship between crude oil prices and the level of
employment in the oil and gas industry in Louisiana, he responded, “That is exactly the case”
(Dickens, personal communication, June 15, 2016). The researcher confirmed that the belief
EFFECT OF FALLING CRUDE OIL PRICES 18
there is a direct correlation between crude oil prices and employment in the Louisiana oil and gas
industry is true.
Ecology. To understand the ecological implications of drilling, a second interview was
conducted with “Honey Island Swamp Tours” tour guide, Terry Reid. T. Reid (personal
communication, June 11, 2016) explains that the building of levees by the Army Corps of
Engineers, Louisiana’s chapter of the U.S. Army Corps of Engineers (UACE), prevented the
natural sediment from forming landmass. According to the “UACE’s” website, the UACE was
establish to operate the naval academy at West Point but has since been tasked with providing
outdoor recreation and environmental engineering services for the entire nation (“UACE,” n.d.,
para. 3). Reid’s analysis of environmental damage done by the UACE will be compared to what
environmentalists claim as the real cause of destruction to Louisiana’s shore line will be
discussed in a later section of this paper.
To understand the landscape in the oil and gas industry in Louisiana before the significant
reduction in oil prices, the U.S. Census Bureau (2014) explained, “The mining, quarrying, and
oil and gas extraction sector of the economy showed tremendous growth from 2007 to 2012 as
the number of establishments rose by 26.4 percent, according to the 2012 Economic Census
Advance Report…” (para. 1). Shortly after this period of growth, the oil and gas economy
shrank. Waguespack (2015) blames OPEC for the reduction in the price level of crude oil and
stated that their oversupply and increased production caused oil prices to fall dramatically (p.
86).
Ethics
Up to this point the overwhelming consensus is that reduced oil prices are detrimental to
the oil and gas market but the contrary has not been presented. Laskowski (2015) claimed, “It's
EFFECT OF FALLING CRUDE OIL PRICES 19
cheaper to transport goods. Consumers have more to spend and the savings on gas help to offset
flat wages” (para. 2). He continues,
At the same time, most of us who do not live in states known for energy
production view the lower costs for gasoline and heating oil as a welcome gift.
The national average price of gas is expected very soon to slip below $2 per
gallon, and when it does that will bring gas prices to the lowest level since March
2009.” (para. 2)
This source helped to answer questions about the savings consumers experience at the expense of
oil and gas workers. The rest of the sources used to formulate an opinion proved that the extent
to which the oil and gas industry is effected in Louisiana exceeds the good experiences of the
nation’s consumers.
Utilitarian views could support the decrease in oil prices because of the vast number of
consumers that are saving money at the pumps. Utilitarian ethics could also deem a drop in oil
prices as unethical. Batson and Neff (2012) explain that the state lottery could be deemed
unethical through the utilitarian lens because the vast majority of players lose and these players
are mostly poor. State taxes are generated but have no real effect on income. Therefore, the
state lottery would be unethical because the amount of good done is surpassed by the losses
experienced by low-income families (p. 29). This is a good analogy to understand that the few
dollars saved by drivers at the pump translates back into jobs lost for Louisiana’s oil and gas
workers.
This entire report would be useless to readers that are against capitalism itself because of
the disadvantages produced by capitalistic decisions leaders make. Readers must be careful to
understand the viewpoint that supports capitalism. “Adam Smith [1723-1790], a Scottish
EFFECT OF FALLING CRUDE OIL PRICES 20
philosophy professor, formulated capitalism as an economic system ethically superior to
mercantilism. Living conditions for peasants in Scotland were harsh at the time of Smith’s
philosophy and freedom was stifled” (Collins, 2009, p. 21). Capitalism however, must be
balanced by a deep rooted sense of integrity by those that are decision makers. The Stewardship
Council (2009) presents theories related to the environment, finances, generosity, and eternity.
“In light of the joblessness that affects millions of people today, kingdom entrepreneurs have the
opportunity to contribute toward the fulfillment of God’s intention for humankind by becoming
involved in the creation of work and enabling people to participate in stewardship of creation (p.
529). So here, the researcher uncovered another viewpoint that supports the creation of work
produced by capitalism.
The Analysis of Key Issues section of this paper explores the ethical implications of
extracting oil in further detail and provides specific accounts of unethical behavior by industry
leaders in the Amazonian region of South America. DeLeon, Stratton, and Berlinger (2009)
present a film that chronicles the everyday lives of residents that have suffered illnesses due to
crude oil extraction. Additional detail concerned with environmental damage caused by oil
extraction was provided by “Vice News” (2012) in the video Louisiana’s Coastal Crisis: Oil and
Water. $50 billion worth of damage has been done to Louisiana’s coast line according to the
video.
Human Resources
Labor is the essential focus of this paper, therefore, the following statistics representing
the labor market in Louisiana will be introduced immediately:
Industries in the Oil and Gas Extraction subsector operate and/or develop oil and gas field
properties. Such activities may include exploration for crude petroleum and natural gas;
EFFECT OF FALLING CRUDE OIL PRICES 21
drilling, completing, and equipping wells; operating separators, emulsion breakers,
desilting equipment, and field gathering lines for crude petroleum; and all other activities
in the preparation of oil and gas up to the point of shipment from the producing property.
(Louisiana Workforce Commission, n.d., para. 1)
The parishes with the highest number of job openings advertised online for
Subsector (3 digit) Oil and Gas Extraction in Louisiana were Ascension Parish
(7), St. Charles Parish (7), St. James Parish (6), Lafayette Parish (3), St. John the
Baptist Parish (2), St. Landry Parish (1), Bienville Parish (1), Calcasieu Parish
(1), East Baton Rouge Parish (1) and Plaquemines Parish (1). (Louisiana
Workforce Commission, 2016, para. 4)
The parishes with the highest number of employers for Oil and Gas Extraction in
Louisiana were Caddo Parish (88), Lafayette Parish (66), St. Tammany Parish
(25), Terrebonne Parish (23), Jefferson Parish (21), Calcasieu Parish (15), East
Baton Rouge Parish (15), Bossier Parish (14), Lafourche Parish (14) and
Vermilion Parish (14). (Louisiana Workforce Commission, 2016, para. 6)
These figures are irrelevant without understanding the decline in the industry’s employment
since the initial fall in the price that has occurred since 2014. The U.S. Department of Labor
provides data on nationwide establishments in the industry in Figure 3. (See Figure 3, p. 38)
Applied Management Theory
Later, the PESTEL framework will be applied to understand the situation operators are
involved in currently. Rothaermel (2016) assumes, “We defined strategic commitments as firm
actions that are costly, long-term oriented, and difficult to reverse. Strategic commitments to a
EFFECT OF FALLING CRUDE OIL PRICES 22
specific industry can stem from large fixed cost requirements, but also from non-economic
considerations” (p. 79).
Accounting vs. Economic Implications of Labor
Issues related to labor in Louisiana’s oil and gas labor market are clarified by the
definition of direct labor. Whitecotton, Libby, and Phillips (2015) discussed, “Direct labor is the
cost of labor that can be conveniently traced to the physical product…It [direct labor] would not
include the labor of those who do not touch the physical product, such as supervisors,
maintenance workers, and engineers” (p. 16). Direct labor that is traceable to a certain amount
of crude oil produced should be examined from both an economic and accounting view.
Accounting because of the traceability of the work performed to produce the final product; and
economically to understand the fixed cost portion of labor. The fixed cost portion of labor is
supervisors, maintenance workers, and engineers. The individual laborer that walks the oil
platforms and rigs is pertinent to the topics presented herein. The workers are variable and are
not fixed in the short run. Keat et al (2013) explained how a shift in supply leads to a short run
decrease in quantity demanded but causes a long run leftward shift in the demand curve as
consumers changes their behavior (p. 51-53). The long run is defined usually as the time period
when all inputs are variable. A definition of the long run is provided by Keat et al. recognizes
that all fixed assets are variable in the long run. One could come to the conclusion that
prolonged, reduced gas prices would outline the long run.
Global Implications of Industry Threats
“MarketLine” produces industry reports on various corporation. ExxonMobil, Chevron,
and Royal Dutch Shell all have threats that stem from the global forces and markets they operate
in. “According to Exxon Mobil’s long term outlook the industry refining margins is expected to
EFFECT OF FALLING CRUDE OIL PRICES 23
remain weak as competition remains intense and, in the near term, new capacity additions
outpace the growth in global demand” (“MarketLine: Exxon,” n.d., p. 35). With regard to
greenhouse gas emissions:
Due to the increasing focus on issues concerning climate change, the role of
human activity in it, and potential mitigation through regulation by various
governments could have a material impact on the company's operations and
financial results. International agreements and national or regional legislation and
regulatory measures to limit greenhouse emissions [GHG] are currently in various
stages of discussion or implementation. (“MarketLine: Chevron,” n.d., p. 34)
“MarketLine” (n.d.) concluded that Royal Dutch/Shell’s threats are climate change, a
wide geographical operating footprint, and a deteriorating climate in Nigeria (p. 26). The
threats presented for these three major operators will be discussed in further detail later
for a complete look at how the Louisiana oil crisis fits into the global oil landscape.
Analysis of Key Issues
Economic Review of Oil Prices
Non-price determinants of demand. This paper revealed the effect world income levels
has on the demand for crude oil and research has eliminated any reason to compare alternative
sources of energy (renewable) as viable or relevant to the discussion in trying to understand the
effect of oil prices on unemployment in the oil and gas industry in Louisiana. Tastes and
preferences is negligible to the discussion as well because crude oil and the resulting gasoline
does not come in multiple flavors nor capabilities. Effectively, the non-price determinant of
demand discussed hereafter related to crude oil demand is the change in world population levels.
Changes in world population is the most important driver of crude oil demand and has been since
EFFECT OF FALLING CRUDE OIL PRICES 24
the first application of crude oil to passenger vehicles. Worldwide crude oil production is driven
by a growing world economy. As more people are born and less people are dying, the world
demand for oil is ever-increasing.
Much of the turmoil in the oil and gas industry is largely blamed on Oil Producing Export
Countries (OPEC). Various sources report that the oil producing countries that are a part of
OPEC decided to hold the supply of oil at a level above what is demanded. The surplus of oil is
in effect creating a reduction in the price level for crude oil. Dickens (2016) stated that the price
of crude oil in November 2014 was $114 per barrel. The price fell to a low of $27 per barrel at
the end of 2015 and leveled out later in mid-2016 to around $50 per barrel (personal
communication, 2016, June 11, 2016). The ethical implications of OPEC’s decisions will be
explored in greater detail later.
Strategy & Policy Review
One strategy for most operators in the oil and gas industry is to reduce costs by passing
decreased profits on to suppliers. Major operators would have significant buying power when
measured against their suppliers. Suppliers of drills, equipment, pumps, and the various
components of an oil well cannot keep prices at initial levels when such high pressures exist in
the market. Operators are forced to look at their surrounding environment to understand the
required steps the firms have to take in order to survive the depression in the oil and gas industry.
The major operators will likely have other lines of business to help keep the entire organization
solvent. Figure 2 (See p. 35), provided by the EIA (n.d.), depicts a 42-gallon barrel of crude oil.
42 gallons only produce 19 gallons of gasoline. The remaining 23 gallons are used in the
production of heating oil, jet fuel, wax, lubricating oils, and other products (para. 2). Major
operators are likely involved in the production of these substances as well.
EFFECT OF FALLING CRUDE OIL PRICES 25
The trickle-down effect of cost cutting is reason the entire oil and gas industry is affected.
Dickens (2016) said that 10,000 jobs were lost in Louisiana alone and that these workers are
moving into alternate and related fields. Related fields include petrochemical production.
Dickens (2016) even went so far as to share personal experiences. He had to move his office to
his home as the Louisiana Oil and Gas Association (LOGA) decreased office space as a way to
reduce costs. He also had to take a pay cut (personal communication, June 15, 2016). The
gravity of the effects felt by the rest of the industry is exemplified because LOGA as an
organization had to cut costs and this organization is not directly involved in the production of
gasoline.
Managerial Accounting. Gasoline is the readily available and ready-to-use version of
crude oil. Once crude oil has been found and deemed a commercially viable source, the crude
oil is extracted from the ground. The extracted oil is transported to a refinery, where the oil is
separated into its useful components. Figure 2 depicts a barrel of oil and the separate parts that
one barrel is broken down into (See Figure 2, p. 37). After the processed crude oil leaves the
refinery, it is transported to different parts of the country through an elaborate system of
pipelines. Major operators own the entire upstream (exploration and extraction) and downstream
(refining, pipeline delivery, and marketing) parts of the production process for crude oil.
Independent operators may only conduct upstream or downstream operations. According to
Dickens (2016) operators are being forced to make decisions that affect their stakeholders. The
companies that supply operators with the necessary tools they need are also affected because as
crude oil prices drop, operators begin to ask suppliers to lower their rates. Dickens (2016) also
asserted that some independent operators are forced into bankruptcy, to merge with larger
EFFECT OF FALLING CRUDE OIL PRICES 26
operators, or they became insolvent and were forced to discontinue operations (personal
communication, June 15, 2016).
Human Resources. Less desirable outcomes are also affecting the industry. Some
companies became insolvent, in which case, all the employees lost their jobs. The major and
independent operators are constricting their workforce, another source of unemployment.
Without any expectations for the future of oil and gas, workers are not expected to wait for their
jobs to reopen in the next few months.
Table 2 presents some interesting statistics about the oil and gas industry nationwide.
Productivity is actually increasing, possibly because organizations are doing more with less
resources. Total labor hours fell from in 2012 to 2015, an indicator that employment has been
reduced in this sector of the national industry. The number of companies nationwide also fell
from 9,829 in Quarter 4 of 2014 to 9,560 in Quarter 3 of 2015 (See Appendix B, p. 14). The
decrease represents the amount of operators that went insolvent or were absorbed by larger
operators.
Ethics
Environmental harm. The most impactful occurrence of ethical violations by the oil
industry was depicted in Crude: The Real Price of Oil as filmmakers chronicled the fight of
several residents of the Ecuadorian Amazon pursued in an effort to make Chevron clean up
waste from crude oil extraction and production in their natural habitat. In the film, Texaco was
acquired by Chevron, and Chevron was being sued to recover the rain forest that had been
poisoned. Residents of all ages had rare skin rashes, high incidences of cancer, and other
illnesses that were identified as a result of the toxic waste. Without reading texts on ethical
dilemmas, viewers could quickly come to the conclusion that Chevron had acted unethically.
EFFECT OF FALLING CRUDE OIL PRICES 27
Another theme that emerged between the two films Crude: The Real Price of Oil and
Louisiana’s Coastal Crisis: Oil and Water: the residents’ government made decisions that
impacted the environmental health of the area. In the Amazon, Texaco’s oil operations were
taken over by the Ecuadorian government. Chevron, Texaco’s new owner, defended their
position stating that the Ecuadorian government was operating the wells at the time the toxic
waste was spilled (DeLeon et al, 2009). In Louisiana, the U.S. Army Corps of Engineers
(UACE) created levees that blocked the natural buildup of sediment, thereby preventing the
formation of natural hurricane barriers. Still, it is plain to see that the oil companies’ defense
isn’t substantial enough to make outsiders believe the government caused the environmental
crisis in either case. The extraction of crude oil, release of toxic waste in Ecuador, and the
building of oil rigs and platforms caused the majority of the damage. The major oil operators
have a profit motive that swings the pendulum of guilt in their direction and away from the
reigning governments. In Louisiana in particular, levees were constructed in an effort to save
human life and reduce storm damage. Oil rigs are constructed to sell oil.
Ethical economics. Ethical implications of world economies play a role. Waguespack
(2015) claimed that OPEC wanted to control the price of crude oil and started to supply a surplus
of oil (p. 68). This is opposite what many economists today describe with regard to OPEC and
the 1970s in the U.S. In the 1970s, OPEC held production and gasoline (crude oil) prices soared.
From a Utilitarian perspective, the greatest good for all is to allow the price level of crude oil to
settle based on the laws of supply and demand. Since the detrimental effects of controlling
supply by OPEC causes harm to oil and gas workers in Louisiana, OPEC is acting unethically,
from a Utilitarian perspective.
EFFECT OF FALLING CRUDE OIL PRICES 28
Recommendations & Conclusions
The most important theory to focus on is the cost to employment in Louisiana and
possibly other regions where the workforce depends heavily on oil and gas. Natural gas is part
of the oil and gas industry because it a major source of energy for Louisiana, but natural gas is
limited in this discussion because it is not used to make gasoline for cars. This paper seeks to
find the implications that supply and demand, world markets, economic theories, and ethics has
on workers in Louisiana. Natural gas is important to the discussion because it lives in the same
industry as crude oil and the same types of workers and organizations produce natural gas, but
natural gas does not have significance with regard to the economic observances. Crude oil is the
focus and the reduction in the price of crude oil causes people to lose jobs. Dickens (2016) as
mentioned earlier considers the fact that workers have moved into related industries or have
moved into new career paths altogether. Oil companies have no control over OPEC’s supply
decisions. The individual workers have the ability to move into various industries and can work
for themselves. Oil companies are more rigid in their opportunities.
Solution for residents. The effect of a reduction in the price level for crude oil has
global causes and implications. Louisiana has been hit with three major events locally in the past
sixteen years: Hurricane Katrina, The Deepwater Horizon oil spill in the Gulf of Mexico, and a
downturn in the oil and gas industry. Residents of Isle de Jean Charles are living on a landmass
that is sinking below the sea, an effect of coastal water exploration. Reid (2016) stated that the
Southeastern Louisiana Coastline is made up of salt water wetlands that gradually change over
from salty, to brackish, to fresh water as one moves inland from the Gulf of Mexico (personal
communication, June 15, 2016). The Louisiana Coastal Crisis: Oil and Water video exhibited
how the building of oil platforms in this region brought salt water into the fresh water marshes
EFFECT OF FALLING CRUDE OIL PRICES 29
which in turn killed the vegetation in the fresh water marshes, thereby reducing the hurricane
barriers (DeLeon et al, 2009). Hurricane Katrina was able to reach land and people quicker
because of the destruction caused by the UACE and oil companies. Essentially, residents have
an environmental nightmare. Environmentalists are against the extraction of crude oil and natural
gas because oil spills can and have occurred in recent history. The Deepwater Horizon oil spill is
the most recent occurrence of large quantities of oil being spilled into and near the natural habitat
of humans, marine and aquatic animals, and other organisms. The toxicity of crude oil is the
main concern to health.
Without moving the residents of Isle de Jean Charles, there isn’t much that can be done to
stop the Gulf of Mexico from swallowing the houses and people that live on the peninsula.
Relocation is the best option for residents because of the size of the body of water it sits in. The
Amazon however has a solution: recover the amount of damages from Chevron to clean up the
oil spill. As documented in the film, litigation has been ongoing since 1994, a cause for residents
to give up fighting to restore their land. Environmental organizations are the best source of
survival as they bring worldwide attention to the issues residents have been dealing with for
generations. Writing letters and communicating with media outlets is the best course of action to
bring the needed attention to the issues of the Amazonian Rain Forest.
Solution for the State of Louisiana. Dickens (2016) shared a statistic that has
implications for the state government in Louisiana. He stated, “For every $1 that the price of oil
drops, $11 million is lost. $114 down to $27 created an $800-million-dollar deficit” (personal
communication, June 15, 2016). The state of Louisiana is currently operating at a deficit.
Reduced oil prices deepen this deficit as the revenues are dramatically decreased as a result of
crude oil prices. A solution for Louisiana may exist. Madowitz and Novan (2013) suppose that
EFFECT OF FALLING CRUDE OIL PRICES 30
the mechanism employed that determines the proportion of revenue the state receives through
gasoline sales and excise taxes can be adjusted to allow for less volatile revenue streams derived
from the sale of gasoline (p. 669). Madowitz and Novan reached the assumption that a Gas
Swap Tax, adjusting the percentage of excise versus sales tax on gasoline, would be a possible
solution for other states because it worked for California. In essence, the excise tax is adjusted
upward and the sales tax on gasoline is adjusted downward (p. 668). Their solution is devised to
reduce the volatility of state revenue streams.
Conclusion
The assumption presented in the executive summary of this paper holds true: Louisiana’s
level of employment in the oil and gas sector is directly affected by crude oil prices. The sources
interviewed and analyzed during the research phase of this study proved this assumption.
Looking at the scenario Louisiana oil and gas workers are in from an economic perspective
would lead one to believe that oversupply is the cause of the hardship the state is currently under.
The economic implications are wide and far reaching. The state’s budget deficit is negatively
impacted and unemployment in the oil and gas sector spiked as workers were forced out of the
industry. The full effects of the depression in the industry have not yet been fully absorbed. The
various issues caused by oversupply in the industry are still being felt by the residents of
Louisiana that have relied on jobs in the oil and gas industry. The main thing the operators of the
industry can do to survive is to cut costs and remain savings focused until the depression of the
industry lifts.
Findings. Supply is the most notable cause for the depression of the oil and gas industry
in Louisiana. Supply held below or above natural levels for an extended period of time,
particularly by the largest oil producing countries should be considered a cause. The time period
EFFECT OF FALLING CRUDE OIL PRICES 31
that the oil and gas worker is unemployed is significant and detrimental but because the oil and
gas worker has alternatives to explore, the impact of a depression in the oil and gas sector of
Louisiana is limited. Still, the time period of unemployment can last six months to one year,
therefore it is unethical for OPEC to influence oil prices by increasing supply when demand is
relatively stagnant. Through the research conducted for this study, the is in fact a depression in
the oil and gas industry in Louisiana caused by the reduced price level of crude oil and its
byproduct gasoline. Americans are saving at the pump at the expense of oil and gas workers.
EFFECT OF FALLING CRUDE OIL PRICES 32
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EFFECT OF FALLING CRUDE OIL PRICES 35
FIGURE 1
Figure 1 Definitions Related to Crude Oil Production
Key Terms
Definition
Barrel A unit of volume equal to 42 U.S. gallons.
Crude Oil A mixture of hydrocarbons that exists in liquid phase in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities. Depending upon the characteristics of the crude stream, it may also include:
Small amounts of hydrocarbons that exist in gaseous phase in natural underground reservoirs but are liquid at atmospheric pressure after being recovered from oil well (casinghead) gas in lease separators and are subsequently commingled with the crude stream without being separately measured. Lease condensate recovered as a liquid from natural gas wells in lease or field separation facilities and later mixed into the crude stream is also included;
Small amounts of nonhydrocarbons produced with the oil, such as sulfur and various metals;
Drip gases, and liquid hydrocarbons produced from tar sands, oil sands, gilsonite, and oil shale.
Liquids produced at natural gas processing plants are excluded. Crude oil is refined to produce a wide array of petroleum products, including heating oils; gasoline, diesel and jet fuels; lubricants; asphalt; ethane, propane, and butane; and many other products used for their energy or chemical content.
Crude Production
The volume of crude oil produced from oil reservoirs during given periods of time. The amount of such production for a given period is measured as volumes delivered from lease storage tanks (i.e., the point of custody transfer) to pipelines, trucks, or other media for transport to refineries or terminals with adjustments for (1) net differences between opening and closing lease inventories, and (2) basic sediment and water (BS&W).
Adapted from “U.S. Energy Information Administration. (n.d.). Petroleum & other liquids:
Definitions, sources, and explanatory notes. Retrieved from:
https://www.eia.gov/dnav/pet/TblDefs/pet_crd_crpdn_tbldef2.asp
EFFECT OF FALLING CRUDE OIL PRICES 36
FIGURE 2
A 42 U.S. gallon barrel of crude oil yields about 45 gallons of petroleum products in U.S.
refineries because of refinery processing gain. This increase in volume is similar to what happens
to popcorn when it is popped.
Figure 2 Amount of Crude Oil Gained from Barrel of Oil
Adapted from U.S. Energy Information Administration. (2015). Oil: Crude and petroleum
products explained. Retrieved from:
http://www.eia.gov/energyexplained/index.cfm?page=oil_home#tab1
EFFECT OF FALLING CRUDE OIL PRICES 37
FIGURE 3
“This section presents data on the number of establishments in oil and gas extraction.
Also included in this section is information on productivity, presented as the rate of change in
output per hour of workers in the industry” (“bls.gov,” 2016, para. 2):
Figure 3 Number of Establishments in Oil and Gas Extraction
Data series Back data
4th quarter 2014
1st quarter 2015
2nd quarter 2015
3rd quarter 2015
Number of establishments
Private industry
9,869 (P) 9,720 (P) 9,594 (P) 9,560
Local government
3 (P) 4 (P) 4 (P) 4
Footnotes
(P) Preliminary
(Source: Quarterly Census of Employment and Wages)
Figure 3.1 Productivity Measured in Per Hour of Output
Data series Back data 2012 2013 2014 2015
Labor productivity index, output per hour
84.093 95.861 107.335 119.549
Percent change from previous year
-5.9 14.0 12.0 11.4
Labor index, total labor hours
151.100 147.483 150.152 144.765
Percent change from previous year
19.2 -2.4 1.8 -3.6
Output index
127.065 141.379 161.165 173.066
Percent change from previous year
12.1 11.3 14.0 7.4
Unit labor costs index
117.434 108.442 100.334 93.596
Percent change from previous year
1.5 -
7.7 -
7.5 -
6.7
Adapted from U.S. Department of Labor, Bureau of Labor Statistics. (2016). About the oil and
gas extraction subsector. Retrieved from:
http://www.bls.gov/iag/tgs/iag211.htm#workforce
EFFECT OF FALLING CRUDE OIL PRICES 38
FIGURE 4
Figure 4 World Oil Reserves in 2000
Note: The amount of oil is measured in billion barrels of oil equivalent (bboe units). .
Adapted from Chapter 9: The economics of oil. (2002). Understanding the World Economy (pp.
168-191). Taylor & Francis Ltd / Books.