Laboring through a soft patch.

The Gist: Friday’s labor data reinforces what we’re already seeing in U.S. oil & gas—softening conditions that began earlier this year are still in motion. If domestic labor markets and thus U.S. oil demand weaken further, $59/bbl becomes the base case offset by continued China oil import strength. But if a dollar spike joins the mix, don’t rule out a slide to $47/bbl.

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With Friday’s weak jobs report as well as big downward revisions to prior numbers it confirmed what’s been occurring in the US economy as well as domestic oil markets.

Real wages & salaries are no longer rising fast enough (i.e. above 2%) to sustain oil demand growth.

Which is itself a function of U.S. labor markets—already weakening for some time, though from the extremely elevated levels we saw in 2022 (as shown below).

Employment in the cyclical parts of the economy most affected by Fed policy have already rolled over or look to be in the process.

Manufacturing payrolls (left chart) have rolled over. The most cyclical segment of the manufacturing sector is the motor vehicle industry and that put in a peak a year ago (middle chart). The all important construction sector (both residential and non-res) looks to be slowing as well (right chart)

All these are signs that the Fed’s policy is clearly catching up to the cyclical and industrial parts of the economy.

The same dynamic is unfolding in U.S. oil markets—conditions were already softening entering the year and tariffs and the uncertainty that comes with it was merely a catalyst in an already weakening environment.

State-level unemployment insurance claims in the critical oil counties of the Permian continue to rise, as shown below.