The number of rigs drilling for oil is unlikely to increase significantly until oil prices climb much higher, Dallas Fed President Rob Kaplan said.
“Based on our energy surveys and discussions with market participants, rig count is unlikely to increase significantly in the U.S. until prices rise to between $55 and $65 per barrel,” Kaplan said in a speech in Mexico City.
Oil analysts don’t see the price of oil reaching $55 over the short-term.
For instance, Credit Suisse said in a note this week it doesn’t see oil prices rising above $50 through the first half of 2017.
Oil prices haven’t been above $55 per barrel since July 2015 even through WTI oil prices CLZ9, -0.55% have climbed by nearly 19% year to date.
The decline in oil production in the U.S. has been a major factor holding down business investment in the economy.
Kaplan said he expects the oil market to reach “rough balance by sometime in the first half of 2017.”
He said an OPEC agreement to limit production levels would help.
“This balancing process could be helped if there is a more explicit agreement worked out between OPEC nations to limit production levels,” Kaplan said.
Oil traders showed this week their lack of confidence that OPEC members will be able to finalize an output deal at their official meeting on Nov. 30 in Vienna.
Over the next few months, excess oil inventories should begin to decline and prices should continue to firm, the Dallas Fed President said.
But prices are likely to remain volatile, he added.
Kaplan said again that there would be “more bankruptcies, restructurings and merger activity in the energy sector” in coming months.
In a Bloomberg television interview, Kaplan said he thought the Fed should be able to raise interest rates “in the near future.”
“I think we’re at the point where we should be able to remove some amount of accomodation” in the context of “a very gradual, shallow path” for rate hikes, he said.
“We can afford to be patient,” he said.
In his speech, Kaplan said he expects the economy to grow at a 2% rate this year. The economy is being held back by “secular” forces that the Fed’s interest-rate policy can’t address by itself.
He said it makes sense for Congress to consider “a range of public investments” to upgrade aging infrastructure, improve productivity and bolster sluggish demand. A meaningful portion of this could come from public-private partnerships, he said.