The global supply chain disruptions that have fueled inflation alongside rebounding demand for everything have been in the spotlight for weeks now. Although little attention has been paid to the effect of these disruptions on the oil and gas industry, it is certainly not insulated. And these disruptions could add further upside potential to oil prices. The American Trucking Association has calculated a shortage of 80,000 drivers that the industry needs to keep delivering goods on time. But it’s not just finished goods that truckers deliver. They also move chemicals, cement, and pipes—goods and materials necessary in the oil industry. To make matters worse, some chemicals are imported, making supplies vulnerable to port logjams that have plagued the U.S. for weeks.
For now, there are no complaints from the oil industry. There is anecdotal evidence that prices are on the rise for various goods and materials, and that there is occasionally a shortage of drivers. It couldn’t really be any other way: global supply chains are breaking down precisely because they are global. Every industry is so connected in the modern world that a breakage in one industry halfway across the globe affects half a dozen others all over the place.
One big problem, as noted in this Bloomberg report, is the production of enough goods. After last year pummeled business activity into the ground, destroying demand for all sorts of goods, this year we’ve witnessed a faster recovery than many in the business of manufacturing goods probably expected. It takes time to return to normal rates of production, whether it’s the production of pipes or microchips, and demand is rising faster than producers can respond to it.
Then there is the labor shortage problem, especially acute in the United States. The shortage of truckers is only one part of a much bigger problem. According to a Wall Street Journal report from last month, the U.S. economy needs 4.3 million workers—the number that would bring the workforce in the country to the level it was at in February last year.
Related: U.S. Shale Patch Reports Blowout Earnings There are 10 million job openings across the country right now, and employers are finding it impossible to fill many of them. When it comes to blue-collar jobs, the WSJ wrote in its report on trucker shortages, the task of filling positions is even harder because there is such demand for workforce; the competition is brutal.
Because of surging demand for everything from consumers, warehouses and factories are also on the hunt for more workers, as are delivery companies, construction businesses, and manufacturing firms. And because demand is outstripping supply to such an extent, prices are rising across the board. This does not necessarily need to be a problem for oil drillers—with oil prices up substantially over the past year, these companies have greater spending power.
Yet besides prices, the shortage of workers, the port jams, and internal problems in major exporting countries—such as China’s energy crunch, for example—also mean longer delivery times for a variety of goods. Longer delivery times mean it takes longer to do everything, including drill and complete a well. And things might not get better anytime soon.
A recent report in Logistics Management cited the account of a long-time trucker who explains that the U.S. transport industry has neither the workforce nor the equipment capacity to respond adequately to the surge in consumer demand. There is also a shortage of storage space. The combination of these factors spells further trouble well into next year.
Just how affected the oil industry will be from all this is yet to be seen. But there is no way an industry that uses huge amounts of raw materials and goods that need to be transported from one place to another—sometimes imported from as far as China—could remain immune to the logistics and transportation problems that the whole nation is having.
Perhaps the impact will only be in the form of higher prices for the delivery of goods and materials. If things get even worse, though, it might begin to affect drilling activity. The global figures are worrying: according to a purchasing manager survey, delivery times for manufacturers across the world are extending, with the October number the worst on record, Reuters reported this week.
On the consumer demand side, there is light at the end of the tunnel—consumers cannot continue to buy durable goods at the current rate forever and will soon switch to services, at least according to the chief economist of UBS Global Wealth Management, Paul Donovan, as quoted by Reuters.
This should ease the pressure on the transport industry and free up more workers for other industries, including oil and gas. With such a shortage in the labor force, however, employers will likely continue to offer higher pay to get the workers they need and will pass on the additional costs to clients. Therefore, the prices of products and services oil drillers use could remain elevated for a while yet, potentially affecting production-related decisions.
By Irina Slav for Oilprice.com
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