Explained: How Shale Oil Production Lowered Gas Prices

Explained: How Shale Oil Production Lowered Gas Prices

Shale oil is a high quality crude oil that’s embedded between layers of shale rock, impermeable mudstone or siltstone. The rock must be fractured to release the trapped layers of oil. Shale oil should not be confused with oil shale, which is rock suffused with kerogen, a precursor to oil. However, in some cases shale oil is also used to describe oil that’s been converted from kerogen in shale rocks.

Shale oil lowers gas prices by increasing the supply of oil in the U.S.  As a result, oil prices fell to an average of $62 per barrel in December 2014, down from $106/barrel in June. It is forecast to drop lower in 2015, before rebounding in 2016. For more, see Oil Price Forecast.

However, oil supply is not the only factor affecting oil prices. Oil is traded on global exchanges. Commodities traders can bid the price of oil up if there are concerns about disruption in supply. For example, oil prices skyrocketed when Iran threatened to close the Straits of Hormuz in 2012.

Shale Oil Production

More than a third of the onshore production of crude oil in the lower 48 states is from shale oil.  Not too long ago it was zero.  As a result, domestic oil production rose from 5.7 million barrels/day in 2011 to 9.2 million barrels/day in 2014.

In 2005, the U.S. relied on foreign oil for 60% of its daily consumption. By 2011, that had dropped to 45%, and is projected to fall further, to 34% in 2019. Shale oil being successfully mined using horizontal drilling and hydraulic fracturing, or fracking. It’s mostly produced in the Bakken fields in North Dakota and Montana. However, some is being mined in the Eagle Ford fields in Texas. (Source: EIA, 2013 Forecast)  Read More: http://useconomy.about.com/od/suppl1/f/Shale_Oil.htm

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