North Dakota recently passed Alaska as the second leading oil producing state in the United States. It boasts one of the lowest unemployment totals in the nation, a fact that is driven by the state’s small population and very large job of building the infrastructure required to extract oil from the Bakken shale formation.
That shale production is a huge money maker when oil sells for $100 or more per barrel, but due to the high costs of drilling, the effort barely breaks even at oil prices of $55 – $70 per barrel. If the producers have to sell into a market where oil costs less than $55 per barrel, they will lose money on every sale.
That is why this report from the Wall Street Journal on the world’s oil markets should worry the people who have recently decided that it is a good time to seek their riches in North Dakota. In natural resources, booms are often followed by painful busts.
Of course, it is unlikely that oil will fall below $70 per barrel and remain there for very long, but it does not take very long at all for drilling companies to decide that there are better ways to spend their money than to invest in plays where every barrel sells at a loss. For the less prudent oil field workers, the difference between comfort and poverty can be a single paycheck.
Like most Americans who drive a car (or a power boat) and are not involved in oil production, I think falling crude and gasoline prices are great news. I simply want to remind readers that there are others with different points of view who might be motivated to try to do something to encourage prices to rise again if at all possible.