The price per barrel of oil has been steadily decreasing over the last several years in the U.S. Competition in the form of natural gas and cleaner energies has started to take noticeable cuts into the market share of oil across the country and globe. The break-even price – which is the minimum price per barrel oil producers need to make a profit – has ebbed and flowed similarly to oil in recent years. However, data shows how the average price per barrel has taken a significant decline in 2020, resulting in the break-even price being significantly higher.
According to data collected by the Wall Street Journal, the average price per barrel of reference oil West Texas Intermediate – $38 – is markedly lower than the needed break-even price of $49 recorded by the Kansas City Fed. This is the first time in four years that the break-even price has held above the average barrel of oil price.
Fracking is the main way to extract oil in the U.S. and has been a cheap alternative for U.S. producers to fill gaps made by the Organization of Petroleum Exporting Countries (OPEC) when supply is artificially cut back. Still, this appears to lead to a lower price per barrel; one that could be substantially lower than the break-even price for many producers. Overall, the continued rise of fracking in the U.S. is proving to be a volatile disruption to the global oil market, and it remains to be seen what the powers within OPEC will do if prices fail to rise soon.