US Shale Oil Industry In Fight For Survival

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By Jacob Maslow

Hydraulic oil production california
KERN COUNTY, CALIFORNIA : Pumpjacks extract oil from an oilfield in Kern County, CA. About 15 billion barrels of oil could be extracted using hydraulic fracturing in California.

Crude oil is at its cheapest in 5 years, hovering at 55 dollars per barrel for west Texas crude. Brent crude oil is at 78.4 dollars. The price has dropped 40 percent in the past 6 months alone, peaking with a high for the year in June. Word on the street is, if oil remains below 80 dollars per barrel, oil producing countries will more than feel the pinch. It has been oversold on the future’s market, adding to the downward pressure on price.

Domestic shale oil production has added 3.5 million barrels per day, augmenting US oil production, up from 0.5 percent  in 2008 to 3.7 percent of total global oil production today. The problem for the domestic shale industry is they invested heavily, to the tune of 20 percent of all oil production investment globally.

The US shale oil producers didn’t count on the price of oil falling when they were building up the fracking business, and now analysts claim that $70 dollars per barrel is the break-even point for most US producers. Even at that price, growth in production will likely slow to 10 percent per year, and investment could diminish by 20 percent. If it falls to 60 dollars, production growth could come to a grinding halt, and investment could drop by 50 percent.

The Dow Jones US Oil & Gas Index had an historic high in June of 2014, peaking at 855.72. Most recently, it is hovering in the 658 region. The Dow (DJIA) fell over 300 points, given the same bad news, falling oil prices. It tumbled from 17,596.34 to below 17,300 in one day, at the Friday close. The drop was attributed solely to oil, according to industry analysts.

OPEC’s recent decision not to decrease oil production led to a relative free-fall in oil prices. Oil stock prices followed suit. OPEC’s is counting on this action to put the US shale oil producers out of business or nearly so.

The decrease in demand means oil producing countries like Venezuela, Saudi Arabia, Iran and Nigeria will desperately need to do something if the trend continues. They need to diversify. For the meantime, they are counting on holding out until the US companies drop out. Unfortunately for them, the break-even point is over 100 dollars per barrel. When oil prices were higher, it was an opportunity for these countries to diversify and build their economies beyond oil production alone.

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