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FTR: The Cost of Oil Drilling Sets the Market Price of Diesel — Not OPEC

August 26, 2015 By: Trucking News Staff Tags: Fleet Management, Fuel, News
FTR: The Cost of Oil Drilling Sets the Market Price of Diesel — Not OPEC

Transportation analysts at Bloomington, Ind.-based  FTR released new data this week that demonstrates U.S. oil production is not falling — despite weak oil prices and a dramatic reduction in new drilling activity.

Noël Perry, FTR’s senior transportation economist, said competition and excellent engineering continues to drive the break-even price for fracked oil steadily lower. Where several years ago that price sat at $65 to $75 per barrel, the most optimistic observers put the price below $30 per barrel now and the pessimists have it below $50. With the global price of oil above $50 per barrel, many such wells deserve attention. (See graph above)

Second, the same engineers are learning how to mitigate the very steep fracked well deterioration curves. It used to be assumed that a fracked well would lose more than 10 percent of its production per month. Now the number is much less, and the existing wells are still producing copious amounts of oil.

The result is that, while there has been an almost 50 percent reduction in new wells started, total production numbers are still strong. There is no need to start expensive new wells if the old wells are still producing. That said the declining costs of new wells ensures that oil production continues.

“Energy pessimists have been predicting the end of petroleum since the Club of Rome published their seminal study almost 40 years ago,” Noël said. “I reported that the energy crisis was over at least two years ago. Market dynamics are making fools of the doomsayers again.”

Energy pricing and carbon reductions will be some of the hot topics discussed at FTR’s annual Transportation Conference, scheduled Sept. 15 through 17 in Indianapolis, Ind. Thought leaders from OEMs, truck fleets, shippers, intermodal, railroads and financial institutions will converge to discuss and plan for the future of freight transportation in North America.