Falling Oil Prices Take Their Toll on U.S. Producers

If the Saudis wanted to crush America's shale oil industry they are certainly doing a good job of it.

West Texas Intermediate reached a 2014 peak of $107.73 in June before dropping as low as $49.77 today on the New York Mercantile Exchange. The grade settled at $50.04 a barrel. That’s below the break-even price for 37 of 38 U.S. shale oilfields, according to Bloomberg New Energy Finance. Shale oil fracking and Canadian tar sand is some of the most expensive (and dirty) oil production on the planet, while conventional Persian Gulf oil is the cheapest to produce.

Warren Henry, the spokesman for Continental, one of the frackers who have been spending money faster than they can make it, says that current oil prices are “not a sustainable long-term trend.”

However, Bob Tippee, Editor of Oil & Gas Journal, has a different take.

"The Saudis have no incentive to lower supply to defend the price of crude oil, that is kind of a given right now, so the Saudis are not going to rescue the market," said Bob Tippee, Editor of Oil & Gas Journal.

It won't come from other major producers either. Both Russia and Iraq have boosted oil production to their highest levels in decades.

So it seems certain that low oil prices are here to stay. At least for now.

And that's bad for the oil patches of red states like Texas and North Dakota.

Some are projecting 100,000 layoffs in the energy sector. Texas is certain to take some lumps.

The slump may push Texas into a “painful regional recession,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, wrote in a Dec. 18 report.

Texas pumps 37 percent of U.S. oil output, EIA data show. The oil and gas industry accounts for 11 percent of the state’s economy, according to Feroli. The effects may extend to housing and other businesses, he wrote.

The majority of Texas energy production is still by conventional means. North Dakota, on the other hand, relies heavily on fracking, so they are looking at hard times.

Already oil rigs are being shut down at the fastest pace in six years.

“At $50 oil, half the U.S. rig count is at risk,” R.T. Dukes, an upstream analyst at Wood Mackenzie Ltd., said by telephone from Houston. “What happened in the last quarter foreshadows what’s going to be a tough year for operators. It’s looking worse and worse by the day.”