05 January 2015

The plunging price of crude oil is NOT due to fracking

The graph above, from last month, is already outdated; CNBC is reporting this morning that the price of crude is now below $50 per barrel.

Certain special interest groups are attributing this fall to the shale oil production derived from fracking in the United States.  It's not that simple:
The cause of the fall, by $40 a barrel, in petroleum prices since last summer is almost completely on the demand side. Asian economies, especially China, are dramatically slowing, and won’t be requiring as much petroleum to fuel trucks, trains and cars to deliver people and goods around the country. Most petroleum is used to fuel transport...

US journalists seem to feel it obligatory to mention US shale oil production as a contributor to the price fall, since prices are a matter of supply and demand, and US supply has increased by a couple million barrels a day. But frankly that is a minor increase in world terms– global production is roughly 90 million barrels a day. Between Iran, Iraq (Kirkuk), Libya and Syria, enough oil has gone out of production to more than offset the additional American oil. It isn’t that there is more oil being pumped, it is that the world doesn’t want it as much because of cooling economies.


  1. Far too little emphasis on the "couple million barrels a day." When Saudi Arabia adjusts production to shift global price, the actual amount adjusted is often only in the 100s of thousands. A couple million barrels a day is a big deal.

    Not to imply that low demand isn't a factor as well, but writing off domestic production like this strikes me as incorrect.

    1. This comment has been removed by the author.

    2. The Slate opinion piece seemed a bit simplistic, when I read it.

      For another perspective, http://fivethirtyeight.com/features/the-conventional-wisdom-on-oil-is-always-wrong/ is a good read.

      In my opinion, oil prices are always priced with some expectation of the future. Oil prices have gone down for a variety of reasons. One of these is that oil traders who set the price with their buy and sell orders see indicators of rapidly increase supply from existing wells (fracking technologies, as seen by the 50% increase in US oil production) -- plus a decrease in global demand from the lingering economic malise. Other factors include political moves by the Saudis who seem to have figured out they can outlast many other producers of oil, and are willing to invest some of their massive capital reserves into taking out a lot of the marginal competitors. In this context, its interesting to note that most US producers aren't profitable at $50/ barrel


  2. For some reason, my first comment didn't post. However, in brief, the article seems very biased. The site linked to the article has many anti-fracking articles. If someone is opposed or resistent, that's fine, but it seems like the author enjoys manipulating several key facts.

    One that was mentioned is that other nations decreases make up for the increase in the USA. This isn't true. World oil output is at an all-time high (or at least was before the price started falling). The USA accounts for about 10% of that. He mentioned Iraq producing less oil, and that is actually the opposite of what has been happening. Since the war, the oil supply has stabilized and now has surpassed all-time output records. And in September, the Kurdish controlled regions alone were producing triple the amount per day over a few years back.

    Fracking is just one of several factors, but to say it isn't at least A reason is disingenuous at best.

  3. Fracking doesn't produce oil, at least not in any appreciable quantities. Fracking produces gas, which is not the same thing as what you put in your car's fuel tank (unless you're one of the few driving a vehicle powered by natural gas). You can't just substitute gas and oil for each other without making major changes to your engines/turbines/generators/etc.

    What fracking is actually replacing is coal.

    1. Not strictly true. Fracking is the technology that uses hydraulic pressure and other mechanisms to crack open the rock down deep in a borehole (the full name is hydraulic fracturing). Then sand is pumped into the cracks to keep them open. This allows oil or gas to them flow more freely back to the bore hole, where it may be extracted. Fracking works in both oil and gas wells. Its also been used in water wells quite successfully. However, most water wells are typically a few hundred feet deep or less, and oil/gas fracking is typically done at depths of thousands of feet.

    2. Not true at all. This WSJ article tells us that in Feb 2015 (after this article and the above comments) fracking accounted for 4.6 million barrels of oil per day, 49% of the total US oil production. The article also gives the natural gas production from fracking at 40.1 BILLION cubic feet of natural gas per day in Feb 2015, 54% of US production.

      Chris is mostly correct about fracking replacing coal, because fracking is making natural gas prices low enough that coal power plants are converting to natural gas.

      My big complaint with this article is that it talks about SHALE OIL" - which is an ENTIRELY different thing altogether. WTF? Both Minnestoastan and the article he quotes do this.

      Confusing shale oil and fracking does no on any good, Stan.

      [WIki]: "Shale oil extraction is an industrial process for unconventional oil production. This process converts KEROGEN in oil shale into shale oil by pyrolysis, hydrogenation, or thermal dissolution. The resultant shale oil is used as fuel oil or upgraded to meet refinery feedstock specifications by adding hydrogen and removing sulfur and nitrogen impurities.
      Shale oil extraction is usually performed above ground (ex situ processing) by mining the oil shale and then treating it in processing facilities. Other modern technologies perform the processing underground (on-site or in situ processing) by applying heat and extracting the oil via oil wells."

      These are two ENTIRELY different technologies. One takes SHALE - literally shale rocks - and processes them to extract oil (not gas). The other pumps WATER - with chemicals added - at high pressure DOWN thousands of feet to open up cracks in oil and gas bearing rocks, through which cracks the oil or gas is more easily allowed to get to the well head.

      The two technologies could hardly be more different.

      Stan, it wasn't SHALE OIL that was driving down the price of oil - it was FRACKED oil and gas BOTH. You should remove this post from the site, beause it's confusing one oil extraction technique (a very expensive process and one that only is profitable when oil prices are high). That is CERTAINLY not the case with fracked oil and gas. Fracking is cheaper than normal drilling - partly because they predominantly use fracking on existing wells as far as I know.

      In this case it seems that Juan Cole (who I respect a lot) doesn't understand the differences. He should have googled this stuff before embarrassing himself.

      For oil shale, this web page covers it pretty well: http://ostseis.anl.gov/guide/oilshale/


      Saying that fracking is not the cause of crude oil prices coming down and then discussing SHALE OIL as if it is fracking - REALLY NOT CORRECT.

  4. Hmm.. I went back and looked at one claim here
    >[ … ] global production is roughly 90 million barrels a day. Between
    >Iran, Iraq (Kirkuk), Libya and Syria, enough oil has gone out of
    >production to more than offset the additional American oil. It isn’t
    >that there is more oil being pumped, it is that the world doesn’t
    >want it as much because of cooling economies.

    The IEA (International Energy Administration) tracks global oil production and consumption, among other types of energy. The following data is from the Dec 2014 Oil Market Report. https://www.iea.org/media/omrreports/tables/2014-12-12.pdf

    Global oil demand in millions of barrels per day (mbpd)
    2012 90.5
    2013 91.8
    2014 92.4

    Total Global supply (production), including Processing gains, biofuels etc
    2012 90.8
    2013 91.4
    2014 93.7 (2Q14 – last full data)

    Margin (supply above demand)
    2012 0.3
    2013 - 0.4
    2014 1.3

    So, while the author has gotten global production about right, the demand for oil has actually increased over the last couple of years.

    Oil Production by identified country
    2013 mbpd Nov 2014
    Iran 2.68 2.76
    Iraq 3.08 3.38
    Libya 0.90 0.69
    Syria 0 0 (not reported)
    Total 6.66 6.83

    So.. oil provided from the countries identified by the author has not gone down, whereas the author has claimed that it has by 2 million barrels per day. That claim doesn’t appear to be right.

    The author made several claims, two of them critical to their argument. Both of those claims (global demand is decreasing, certain countries have dropped their production by about 2 mbpd) are flat wrong. Since those are critical to their thesis, I would place the credibility of this piece are very low.

  5. http://www.live-counter.com/oil-production-worldwide/


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