Stable production of shale oil (tight oil) puts downward pressure on the oil price

Posted on September 28, 2017


Oil pricw 4 years

Three years ago, in September 2014, the oil price began to fall and by the end of that year it had fallen from $90 per barrel to $60. One of the reasons for the price fall was the dramatic increase in production of shale oil in the USA. The production from individual new shale oil wells falls very rapidly meaning that many new wells must constantly be brought online to maintain stable overall production. The number of active drilling rigs fell when the oil price fell so that the production of shale oil (tight oil) also began to fall. Using the technology that they had in 2014 it was not profitable to drill new wells. During recent years the technology has improved so that an oil price of around $50 per barrel can give profitable production. We see now that production is slowly beginning to rise, mainly in the Permian field of West Texas. The fact that shale oil production has stabilised means that the price of oil remains low compared to the summer of 2014. Also, the fact that the automobile industry is signalling that it will be developing electric vehicles telling investors and others that the market should adapt to reduced oil demand. Although conventional crude oil production has been declining in recent years this has not affected the oil price. The oil price low of January 2016 will maybe remain the lowest seen for some time to come. The question is if and when the price of oil will rise in future to possibly exceed $70, $80 and $90 per barrel. The fact that the oil industry is finding fewer and fewer new oil fields points to future falls in oil production. However, if demand continues to decline then the price of oil will not rise. At the moment, the future tilt of the oil supply and demand balance is a little uncertain.

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