Price of oil needs to climb, Fed Reserve official says
PONCA CITY — Chad Wilkerson, Oklahoma City Branch Executive for the Federal Reserve Bank of Kansas City, told the Ponca City Economic Forum on Wednesday that the rising number of oil rigs in Oklahoma has tapered off.
The slowdown is due to the price of oil not advancing much above $50 a barrel, he said.
“I think you are going to need oil to be at $60 a barrel for there to be an increase in rig exploration,” Wilkerson said. “Right now at $50 a barrel, oil firms are somewhat profitable and can maintain some of their activity.”
Wilkerson pointed out that in the earlier part of this decade, the state’s oil industry believed profitability was at $80 a barrel, but technological advances and cutting service costs on equipment and oil sites had reduced the dollar amount.
The Oklahoma oil industry saw oil crashing downward to almost $25 a barrel in the early part of 2016. Since then a barrel of oil has nearly doubled in price.
The ripple effect of the rise in oil can be seen in the increased hiring in construction, professional and business services, and moderate growth in health and the hospitality fields. The state is still seeing a decline in trade and transportation.
Manufacturing output in the state is also projected to increase — especially when connected to the needs of the oil patch.
“Technology in the oil field is going to continue to advance, but the impact of cutting service costs is going to rise, eventually affecting profitability,” Wilkerson said.
Another economic negative for the Oklahoma oil industry is the strength of the U.S. dollar overseas.
“The strength of the dollar has hurt oil prices,” Wilkerson said.
Although $50 a barrel oil may slow Oklahoma’s current economic rebound, the state has seen improvement in a number of sectors.
Although the agriculture sector remains weak in the state as compared to 2014, it has shown a slight improvement over last year’s economic indicators.
“Oklahoma’s agriculture sector was being held up longer than the national average by what Oklahoma farmers were getting for their cattle, but cattle prices finally took a tumble in 2015,” Wilkerson said.
Wilkerson pointed out the state’s agricultural sector is still doing better than most states within the 10th Federal District, which includes Oklahoma, Kansas, Nebraska, Colorado, Wyoming, northern New Mexico and western Missouri. The value of farmland in Oklahoma has also declined only marginally in comparison to other states in the district.
Sales tax collections are up over last year in nearly all Oklahoma counties, he said, and the state has almost closed the gap in job growth with the U.S. average at nearly 2 percent over last year.
Oklahoma’s unemployment rate now mirrors the nation at roughly 4.5 percent. These factors contributed to the financial condition of the state’s banks being on par with the national level.
One worry, though, is the lag in wages.
Data from the Federal Reserve Bank of Kansas City shows one of the primary driving economic forces for northeastern Oklahoma is manufacturing, while for northern Oklahoma it is still oil and agriculture.
Tribal government expansion is credited as a major economic factor for southeast Oklahoma’s economy.