Dropping Prices May Be Hurting Domestic Shale Oil Drilling

By Douglas V. Gibbs

Economics are pretty simple.  Supply and demand are the primary forces behind prices, and economic growth.  Other factors, however, can also play into the game, such as the cost of doing business.  In the world of oil, prices have been dropping because supply has been going up with the United States drilling domestically.  The oil boom in North Dakota has transformed the State into a booming site of activity.  Jobs are being filled quickly, and the need for more workers continues to increase.  The oil boom has made North Dakota a very popular place to be.  But, like the dot com bubble, the success of American shale oil may be its own undoing.

The United States has a lot of oil, and much of that oil is in shale deposits.  Recoverable oil from America's oil shale deposits is three times greater than the proven oil reserves of Saudi Arabia.  Extraction of oil shale, however, is much more complex than convention oil drilling, and much more expensive.  Extraction strategies include "Fracking," a method that pumps water, sand, and a small amount of chemicals into the ground to fracture the rock and allow the oil to pour into the horizontal drill tube.

Critics claim that fracking causes earthquakes, and poisons water tables.  Oil drillers claim that every precaution is taken to ensure the water is safe.  As for flaming faucets, studies have shown that the phenomena appears in areas where there has been no fracking, as well.

The expense of recovering oil from oil shale deposits, being more expensive, means that if the price of oil goes down too low, the cost will exceed the price, and kill the industry.  As American drilling increases the supply, prices have come down.  We have all seen it at the pump.  Middle Eastern oil producers are torn on the next move to make.  Some wish to reduce production so as to drive prices back up and make the efforts of OPEC nations more profitable.  However, keeping their production level where it is may keep prices low for a while, but the prices will come right back up after the low prices kill their competition in America who may not be able to afford to continue to compete because of the cost of extracting oil from shale.

-- Political Pistachio Conservative News and Commentary







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