Prices received by oil producers in North Dakota’s Williston Basin have averaged less than $34 per barrel so far this month, according to the list of posted prices issued by Plains Marketing.
Prices have fallen by almost two-thirds since June 2014, when Plains posted an average price of nearly $92 per barrel for Williston Sweet (www.paalp.com).
News reports in recent days have been full of stories about WTI and Brent futures prices falling down through $50 but many U.S. physical crude producers are receiving far less and would be thrilled if they could get $50.
The recent decline has been almost as rapid and brutal as the second half of 2008 and early 2009 when Williston prices crashed from $116 in July 2008 to average less than $17 in December (http://link.reuters.com/typ73w).
Williston prices are now lower than at any point since January 2007, with the exception of a brief four-month period at the depths of the financial crisis and recession between November 2008 and February 2009.
In 2008-09, prices staged a substantial rebound fairly quickly: by June 2009 the price of Williston Sweet was back above $50.
But at the height of the financial crisis OPEC, led by Saudi Arabia, slashed its collective production allocations by almost 4 million barrels per day in a bid to rebalance the market and defend prices.
The difference this time is that OPEC is determined to maintain output and force U.S. shale producers to cut back.
Given the price war, prices could remain lower for longer this time until someone succumbs to the war of attrition.
But the downturn in oil demand was also much worse in 2008-9, when most of the advanced economies had stopped growing and fallen into recession, which suggests the need for production cuts is smaller.
Even the relatively short-lived collapse in oil prices during 2008-9 was enough to produce a flattening in the otherwise upward trend of North Dakota’s oil production (http://link.reuters.com/zyp73w).
In any event, past experience strongly suggests extreme prices, like the average $117 per barrel posted in June 2008 or the $17 posted in December 2008, tend be relatively short-lived phenomena, followed by a partial correction (http://link.reuters.com/ryp73w).
With Williston Sweet prices now below every reported estimate for the cost of production, there is a good probability some sort of rebound in the next 2-3 months.