On Friday, April 24, international oil prices remained above $100 per barrel due to geopolitical tensions in the Middle East, with the risk of supply disruptions in the Strait of Hormuz continuing to escalate. The latest Dallas Fed energy sector survey showed that despite energy costs pushing up inflation expectations, and the Fed lowering its forecast for the number of rate cuts this year to one ahead of next week's policy meeting, US energy companies' expansionary intentions are clearly weak. This not only directly affects the employment outlook in the energy sector but also creates potential pressure on the overall labor market through cost transmission. Traders are closely watching how geopolitical uncertainty will reshape the path of economic growth and policy responses.

Survey data on hindered expansion in the energy sector points directly to uncertainty.

A Dallas Federal Reserve survey of 120 companies in Texas's oil-rich region revealed that most are cautious about rising oil prices triggered by the conflict with Iran. 59% of respondents expect their headcount to remain flat by the end of 2026 compared to the end of 2025, only 4% predict a significant increase, and 28% anticipate a slight increase. This data, in stark contrast to high energy costs, highlights the restraining effect of geopolitical factors on capital budgets and hiring plans.

Expected Category	Change in the number of employed persons	Production growth expected ratio
The same or unchanged	59%	30%
Slight increase	28%	43% (less than 250,000 barrels per day)
Significantly increased	4%	27% remaining

Regarding production, 43% of companies expect U.S. crude oil production to increase by no more than 250,000 barrels per day in 2026, equivalent to an increase of about 1.8% from the recent level of 13.6 million barrels per day, while another 30% believe there will be almost no growth. In anonymous feedback, companies generally mentioned that "geopolitical events are too chaotic to provide certainty for commodity pricing" and "even though oil prices have remained above $90 for several weeks, the number of drilling rigs has declined, indicating a lack of confidence in the sustainability of prices." These statements reflect a reality familiar to traders: while price fluctuations bring short-term gains, long-term investment decisions rely on stable expectations, and in the current situation, supply chain disruption risks dominate market logic.

High oil prices are putting pressure on both the job market and employment.

The direct consequence of conservative hiring by energy companies is that the energy sector cannot provide a significant employment buffer as it did during historical oil price peaks. Non-energy sectors face profit squeeze from rising energy costs, potentially triggering broader layoffs. As an upstream cost center, the sluggish expansion of the energy sector will amplify the inflationary transmission effect to downstream manufacturing and service industries, leading to a slowdown in overall labor demand. The latest non-farm payroll data shows that although job growth remained positive in March, the contribution from energy-related sub-sectors was limited, closely consistent with survey results.

The logic behind companies' reluctance to significantly increase production lies in the difficulty of capital expenditure planning: drilling rig deployment and budget preparation require predictability of price paths, while current volatility stems from the uncertainty of supply disruptions. Some feedback indicates that "when prices fluctuate wildly due to external events, it is impossible to effectively plan drilling rigs and capital budgets." This is not a simple cyclical reaction, but rather a long-term constraint on industry capacity utilization caused by structural uncertainty, thus limiting the employment multiplier effect. In contrast, while net energy exporter status buffers some external shocks, it cannot eliminate the indirect drag on the job market from rising domestic costs.

The adjustment of monetary policy path exacerbates the trade-off between inflation and growth.

Economists have raised their 2026 inflation forecasts, with energy costs emerging as a key driver. Ahead of the Federal Reserve policy meeting, the market consensus is that there will be only one rate cut this year, a significant tightening from the previous path. This adjustment stems directly from the spillover effect of energy prices on core inflation and the potential decline in household purchasing power. Traders are focused on how next week's meeting will balance employment goals with price stability: if energy company hiring data remains weak, the overall resilience of the labor market may be tested.

The acceleration of key consumer price indices in Japan also confirms the global energy spillover effect. Looking ahead, Goldman Sachs economists recently pointed out that the potential US economic growth rate will average around 2.3% from 2026 to 2028, primarily supported by a 2% annual productivity increase driven by artificial intelligence. Labor force growth will contribute only 0.3 percentage points, with immigration contributing less than 0.1 percentage points, and aging further inhibiting expansion. This outlook means that even with a limited contribution from the energy sector, productivity gains can still support overall employment stability, provided that geopolitical risks do not further worsen inflation expectations.

Frequently Asked Questions

Question 1: Why are energy companies' willingness to expand during periods of high oil prices far lower than market intuition suggests?
A: The core issue lies in the difficulty of predicting price paths due to geopolitical uncertainties. Surveys show that despite high oil prices and the possibility that the Strait of Hormuz disruption may continue into August, 43% of companies only expect a slight increase in production, with most emphasizing the difficulty of capital budget planning amidst the chaotic situation. The declining trend in drilling rig counts, familiar to traders, is a quantitative manifestation of this lack of confidence, which suppresses the hiring multiplier effect and avoids the inventory risks associated with blind expansion.

Question 2: How will weak employment in the energy sector affect the Federal Reserve's policy path?
A: High energy costs are pushing up inflation expectations, prompting economists to lower their forecast for the number of rate cuts this year to only one. The Federal Reserve needs to weigh the pressure of energy spillovers on non-energy sector profits and employment. A broader slowdown in the labor market could trigger additional easing, but current data suggests that policy will remain cautious to prevent a double-dip inflation.