$50 Oil Is Already Here

In North Dakota, $US50 oil is already here.

The price of crude oil in the Bakken shale region fell below $US50 for some producers on November 28, according to a report from Bloomberg’s Dan Murtaugh.

Prices touched $US49.69, nearly 30% cheaper than the roughly $US70 Brent crude is currently trading in the global market.

North Dakota is one of the epicenters of the shale boom that some are blaming for plunging oil prices. Weaker global demand and an OPEC decision to maintain supply at current levels have also driven oil lower.

But as Murtaugh reports, the difficulty of moving the oil from the Bakken region to refiners is putting more pressure on Brent prices there. Oil producers typically give refiners near the coast a discount to cover transport costs.

As Andy Lipow, president of Lipow Oil Associates told Murtaugh, “You have gathering feeds, trucking, terminaling, pipeline and rail fees … If you’re selling at the wellhead, you’re getting a very low number relative to WTI.”

Producers are now wary that booming oil production may strain the existing pipeline system and cause further price declines. The Bakken shale produces 1.12 million barrels a day, but Murtaugh reports there is only pipeline capacity for 583,000 barrels although that’s expected to grow by about 200,000 at year-end.

Here’s more from Bloomberg on how this could impact producers:

One possible effect of lower prices is that companies may focus their spending on places where the infrastructure already exists or is on the way, said Carl Larry, a Houston-based director of oil and gas at Frost & Sullivan.

“Places that are just starting to build up are going to be hit the worst,” Larry said by phone yesterday. “They’re going to get hit the hardest because it’s harder to get the oil out. Not out of ground, but out of the area.”

Last week, Business Insider’s Myles Udland reported that according to Citi, $US60 per barrel of Brent crude is the price point at which “a significant amount of shale production would be challenged.”

Some producers are already working below that mark.

You can read the full report from Bloomberg here ยป

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.