Despite slowing production in the U.S., where shale producers have restrained themselves from unleashing their inventories of drilled but uncompleted wells (DUCs), signs of the oil market rebalancing remain elusive.

Baker Hughes Inc.’s (NYSE: BHI) CEO Martin Craighead believes oil prices in the upper $50s are needed to usher in a sustainable recovery for North America’s oil market. Until that happens, he warned oil and gas companies to forgo significant spending changes.

“Unfortunately, and as I’ve said before, we still haven’t seen changes in the underlying fundamentals to indicate that the oil market is close to rebalancing in order to support a more meaningful increase in oil prices,” Craighead said Sept. 7 during the Barclays CEO Energy-Power Conference. He pointed out sustained declines in U.S. crude oil production, but added “there is still substantial crude oil production capacity available globally along with stubbornly high inventories.”

He said this one day before commodity prices rose with WTI rising $2.12 to close at $47.62 per barrel (bbl), following a large drop in the crude stockpiles—most likely the result of Tropical Storm Hermine shutting in oil and natural gas production in the U.S. Gulf of Mexico—at one point by as much as 22% of oil and about 10%. The curbed activity sent crude stocks down by 14.5 MMbbl during the week of Aug. 29 to 511.6 MMbbl, according to the U.S. Energy Information Administration (EIA).

The drop, which Reuters reported was the biggest weekly decline since 1999, came as the EIA also forecast U.S. crude oil production to average 8.8 MMbbl/d in 2016, down from an average of 9.4 MMbbl in 2015. Production is expected to fall further in 2017, down to 8.5 MMbbl/d but slightly higher than previously forecast. The federal agency expects WTI crude oil prices to average about $42/bbl this year and $51/bbl next year.

In addition, the EIA raised the U.S. oil demand growth outlook, forecasting an increase of 200 Mbbl/d to 19.6 MMbbl/d in 2016 and an increase of 140 Mbbl/d to 19.74 MMbbl/d in 2017, Reuters reported.

But uncertainty remains with global energy demand.

“On the demand side, the global macroeconomic outlook including pockets of uncertainty in critical economies, does not reflect the oil demand growth needed in the near term to absorb this access supply,” Craighead added, later noting the ability of U.S. shale producers to add spare capacity to the market quickly by completing DUCs.

However, with supply-demand still unbalanced and oil prices hovering in the $40s, Craighead anticipates any activity ramp-ups in North America to be limited to core acreage such as assets in the Permian, Stack and Scoop.

In the Delaware Basin, operators such as WPX Energy Inc. (NYSE: WPX) and Apache Corp. (NYSE: APA) say they are excited about the multizone stacked pay potential. WPX estimated that there are about 60 MMbbl of oil in place in the Wolfcamp A per 640-ft section. Just this week, Apache confirmed the company discovered a significant play—called the Alpine High—in the Delaware Basin. Hydrocarbons in place on Apache’s acreage position include 75 trillion cubic feet (Tcf) of rich gas and 3 Bbbl of oil, according to the company.

RELATED: Stacked Pay Potential Lures Oil Companies To Delaware Basin

RELATED: Apache Uncovers Alpine High’s Potential

Internationally, “activity levels will lag the recovery in oil prices with lower lifting costs conventional markets such as the Middle East and North Africa experiencing the first increase in activity,” Craighead said. “Customers that have liquidity or easy access to capital tend to be leading the pack; whereas those who need to tap the debt market to fund projects likely are going to hold off for longer.

“Regardless of the near-term challenges, we remain optimistic on the long-term outlook for the industry,” he added. “This recovery is not a matter of if; it’s more a matter of when.”

Ready For A Rebound

Baker Hughes will be positioned for profitable growth, he said, having made operational changes in an effort to bring new products to the market faster and more efficiently. The company continues to reduce costs as it works to hit a $500 million annualized savings target by the end of third-quarter 2016, three months ahead of schedule.

The company has identified additional cost-saving opportunities and expects to exceed its original target for the year, which is expected to result in a restructuring charge in the third quarter, Craighead said. Baker Hughes also has identified opportunities in the pressure pumping market and is currently exploring different ownership models to join the North America land pumping market.

But the company sees the biggest opportunity in the next generation of well construction and production solutions for customers. The company plans to address the challenges of radical efficiency improvements in three areas, he said: extending end-to-end standardization, improving existing products and developing new products to maximize efficiency gains and maximizing the value of available data.

“We’re also close to launching a self-adjusting revolutionary drillbit that offers an automatic pressure-related response to changing conditions experienced real-time downhole,” Craighead added. “The combination of integrated self-adjusting depth-of-cut control elements with the latest synthetic diamond cutter technologies allows the bit to adapt to changes in the formation without any interaction from the surface. Essentially, it will on its own smooth out the drilling process and reduce harmful vibrations that could damage a bottomhole assembly.”

Velda Addison can be reached at vaddison@hartenergy.com.