Energy prices have fallen considerably during the last year. Today, crude oil is hovering around $50 a barrel, down significantly from last year’s price of $110. As a result of the price drop, U.S. consumers are enjoying cheaper gas and lower electricity and home heating bills, which have been good overall for most segments of the economy. It has not been good for domestic oil production, however, which is now in a rapid decline.
According to a recent Wall Street Journal article, the average break-even price for crude oil production in North Dakota is around $35 a barrel, but approximately 15% of that available oil has a break-even production price of $87 a barrel. The national average cost of production for shale oil is around $75 a barrel, with a range of just below $30 to over $110. When the barrel price falls below the break-even production cost, you stop producing, which is exactly what is starting to happen in North Dakota and elsewhere.