How US Fracking Breakthrough Forced Oil Prices Down

What has puzzled many observers about the suddenness of global crude oil prices from an average of $100 per barrel of light West Texas Intermediate (WTI) to $50 between mid-year 2014 and the end of that year is the fact that America's daily use was actually twice as much (19.5 barrels per day) as the fracking technology only increased to just short of 10 million bpd in the past six years. This meant that half of America's daily usage was still generated from other sources.

The answers lie in the capacity of 140 U.S. refineries (largest total refining capability in the world), and their crude oil sourcing, which emanates from a wide range of global crude oil producers, including heavy density crude from such global sources as Saudi Arabia, Venezuela, Iraq, Iran, and the fast increasing heavy oil sands from Canada's Athabasca region.

The critical key to distribution feeding into America's vast retail sector of oil derivatives is America's complex refining capability, which is today geared to the high density crude from previously described offshore bases. Just as these highly productive U.S. refineries ship their derivatives increasingly to Central and South America, roughly 9 million barrels per day are contracted by the refineries to utilize the heavy offshore oil. This provides U.S. refineries with the dense Brent crude, which they prefer, since they are equipped to handle such basic sources much more profitably than the light WTI U.S. version.

The genesis of the mid-year 2014 price crash elicited from a world battle for the shrinking U.S. market import availability. This was codified on Thanksgiving Day, Nov. 26, 2014, at OPEC's Vienna meeting, which refused to decrease its production capability, because they did not want to give up their American market share permanently.

Since oil pricing is universal, the reduced pricing that was shaved to be competitive in the U.S. is now available everywhere. But since this market battle has cut deeply into the world's leading oil producers' profits and balance sheets, these corporate giants (such as Exxon Mobil, Conoco Philips, Shell, BP, Chevron, etc.) have initiated a major operations cutback after their lowest profit in years became public in late July, and early August. This also hastened production cuts of drilling rigs, and varied technical service equipment, which is also impinging on such technical service giants as Halliburton, Baker Hughes, and Schlumberger, who, among others, have provided the tools for America's technological fracking miracle.

With these reductions have also come the layoffs of thousands of highly-paid technical employees, which will reverse much of the nation's post-recession high level employment utilization. While some recovery from the 50% price crash has been achieved spasmodically, it will all depend on how far America's energy giants are willing to go to retrieve a major level of higher prices.

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