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Crude Economics
Shale Buoys American Oil Output

America’s latest oil production numbers suggest shale producers are coping with cheap prices much better than expected. The U.S. Energy Information Administration (EIA) recently published November’s crude output numbers, and in that report there was something unexpected: Onshore output in Texas and North Dakota—two of the shale boom’s most productive regions—actually increased. Reuters reports:

U.S. crude oil production fell for a second month in November due to a drop offshore, but higher output from the biggest shale states highlighted the industry’s surprising resilience. Production nationwide in November dropped 52,000 barrels per day to 9.32 million bpd, the lowest figure since June, according to data from the U.S. Energy Information Administration’s petroleum supply monthly report on Friday.

Gulf of Mexico output fell 57,000 bpd, while onshore production inched up 3,000 bpd in Texas and rose 5,000 bpd in North Dakota, broadly in line with previously reported state data…In absolute terms, Friday’s data was much higher than expected, with output of 9.32 million bpd versus the 9.05 million bpd expectation in the EIA’s forecasts.

To really understand the health of the American shale industry, let’s first look at what fracking has accomplished thus far. Below, you can see the transformative effect shale has had on America’s crude oil production. In January 2009, the United States produced just over 5.1 million barrels of crude per day, and in fact for most of the 2000s our output stayed fairly consistent with that level. But hydraulic fracturing and horizontal well drilling set off a veritable bonanza, and our latest figures put U.S. production at 9.32 million barrels of oil per day:

Of course, the big news in the global oil market has been the nosedive prices have taken over the past 18 months or so, as an oversupply has brought benchmark prices down from over $110 per barrel in June of 2014 to under $35 today. Shale production is relatively expensive when compared to more conventional oil operations, so many observers expected U.S. production to quickly come down as companies were forced to shut up shop when faced by vanishing profit margins. But as we can see below, since June of 2014, U.S. output hasn’t fallen off a cliff:

True, the consistent growth in crude production that the shale boom unleashed over the past four years has tapered off, but the latest data evince the remarkable resilience of a still nascent industry. Shale producers got off the ground by innovating new techniques to unlock reserves previously deemed inaccessible, and they’re continuing to stay afloat thanks to a wide range of clever adaptations and refined techniques. If oil stays at bargain price levels, producers around the world—including here in the United States—will be forced to cut spending, but so far the numbers suggest America is more ready than many thought to take on the challenge of a bearish market.

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