Dallas Fed: NM oil outlook likely to improve in 2017

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Robert Kaplan, Pres. and CEO of the Federal Reserve Bank of Dallas answers a question given to him by commentator Teresa Molina with the First New Mexico Bank. (Jim Thompson/Albuquerque Journal)

ALBUQUERQUE, N.M. — The oil industry outlook in New Mexico and elsewhere is likely to improve somewhat in early 2017, according to Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas.

Kaplan said the improvement will be driven by what the Federal Reserve predicts to be an increase and then stabilization in the price of oil.

“It seems to slowly be moving toward balance,” said Kaplan. “There won’t be a huge burst, and it won’t be spectacular, but we’ll be looking at a better operating environment for energy.”

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Kaplan made the comments Friday at the annual meeting of the Independent Bankers Association of New Mexico. The Federal Reserve Bank of Dallas is the regional reserve bank that serves southern New Mexico. Northern New Mexico is served by the Federal Reserve Bank of Kansas City.

The demand for oil is growing by 1.3 million barrels a day, according to Kaplan. He said he expects the global supply of oil to reach a balance with the global demand for oil in the first quarter of 2017.

“Energy is a big part of the economy in New Mexico,” said Kaplan. “I’m very optimistic about this district, but it’s still going to be a challenging year for us.”

The New Mexico oil industry has seen a dramatic upheaval in recent years as the price of oil has plummeted and demand increases for renewable resources. In February of 2014, the price of oil reached more than $100 a barrel; in January of this year it dipped to just over $26 a barrel. The price on Friday was $41.45 a barrel.

State and industry figures show at least 6,000 people have lost their jobs in the oil industry since 2014, a number that goes as high as 18,000 if indirect jobs like equipment suppliers are included.

Kaplan said in addition to slowly rallying oil prices, he was also encouraged by reports of cross-border partnerships between New Mexican and Mexican businesses.

“Some people would call that exporting, but it’s really a production partnership,” he said. “We’ll need to see a lot more of those.”

The comments were a bright spot in his otherwise solemn assessment of the national and New Mexico economy.

“As difficult as the last eight years have been, I think this period we’re in now will be as or more difficult and challenging,” he said. “The question is how to normalize monetary policy during this time.”

Kaplan said his biggest concern was the slow growth rate of the U.S. economy. The country’s second quarter GDP growth was 1.2 percent, which he called “surprisingly low.” He attributed the weak growth to low confidence in the global economy, as well as more systemic issues such as Baby Boomers aging out of the workforce.

“The war of 2008 was about how to de-leverage the economy,” he said. “The war of 2016 is about how to grow.”

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