This article was written by Oilprice.com, the leading provider of energy news in the world. Check out these other articles.
The U.S. reported gains of just126,000 new jobsin March, falling far short of the 245,000 jobs that the markets expected. It was theweakest monthly totalin more than a year. How can that possibly be a good thing for oil and gas? Why would a seemingly slowing labor market be seen as a plus for fossil fuels?
Here's why: The report reduces the chances that the U.S. Federal Reserve will take the punch bowl away.
The Fed has intimated that it will raise interest rates at some point later this year after more than a half-decade of easy money. But the March jobs report suggests that the swift appreciation of the U.S. dollar is starting to cut into job growth. When the dollar is too strong, U.S. exports become less competitive. Also, inflation is still relatively meager, reducing the downside of keeping the taps open.
Taken together, with the ongoing slack in the labor market combined with flat inflation, a strong U.S. dollar, and weakening job growth, there is little reason for the Fed to raise interest rates.
That would help oil and gas companies in a few ways. The first effect is on the dollar. Pushing off a rate increase will cause the dollar to depreciate -- or appreciate at a lower-than-expected rate. Since oil is priced in dollars, a weaker U.S. dollar will cause oil prices to rise. That is great for oil companies.
The second effect is on interest rates themselves. If the Fed decides to wait a bit on tightening its money policy, oil and gas companies will still be able to find credit. Interest rates are already rising on weaker oil companies due to mounting debt, but the companies that are in a solid position will be able to tap their credit lines and receive reasonable interest rates on loans. That will allow them to keep their operations going.
On the other hand, that could also delay the day of reckoning. Oil prices are going to rebound in earnest when oil companies are forced out of the market and supply shrinks. That will happen much quicker if interest rates do in fact rise. But if you ask oil executives, they would say that cheap money from the Fed is a boon to the industry.
With all of that said, the March jobs report was just a single data point, and could be statistical noise in the grand scheme of things. Perhaps it was ahangover from bad winter weatherthat is only now manifesting itself in the data, as a top Fed official believes. But if there is no improvement in April, the Fed will start to take notice, and that would be a great thing for oil and gas.
The article Bad Jobs Report Could Be Good for Oil Industry originally appeared on Fool.com.
By James Stafford for Oilprice.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.