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The Bakken story: Oil prices down, but activity holding up

As drilling and fracking technology improves, the break-even price becomes a moving target

February 20, 2019

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The Bakken story: Oil prices down, but activity holding up

A lesson of experience in the Bakken oil patch shows that when crude oil prices fall below a critical threshold, oil drilling activity falls off a cliff. The chart below, from the Federal Reserve of Minneapolis’ Bakken Oil Boom web page, illustrates a pair of such episodes in recent history.

In late 2008, and again in late 2014, a sudden rapid decline in oil prices to below about $60 a barrel preceded a similar decline in the number of active drilling rigs.

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The tricky part is that no one is exactly sure where the threshold is. The technology of drilling and fracking keeps improving, and so has the infrastructure to get oil to market. That makes the price at which producers break even a moving target.

This question has become relevant again, as crude oil prices plunged at the end of 2018, dipping below $50 a barrel. However, oil drilling activity hasn’t yet followed that downward suit, at least according to the most recently available data. The number of active drilling rigs in North Dakota and Montana as of January, while still far below its peak, was holding steady well above the rig count a year earlier. Bakken oil production as of December was 20 percent higher than in December 2017.

One thing that may have begun adjusting is labor markets. December employment in the core oil patch counties was down 1.7 percent from a year earlier. However, unemployment in the Bakken was still sitting below North Dakota’s very low rate.

All of this may change if oil prices fall further or stay down for an extended period. The Minneapolis Fed will be keeping an eye on the situation as it changes.

photo of Joe Mahon
Joe Mahon
Director, Regional Outreach
Joe Mahon is a regional outreach director at the Federal Reserve Bank of Minneapolis. Prior to that, he served as a regional economist and as a staff writer and analyst for Minneapolis Fed publications the Region and fedgazette. Mahon's primary responsibilities involve tracking several sectors of the Ninth District economy—an area that covers Minnesota, North and South Dakota, Montana and portions of Wisconsin and Michigan—for the Fed. Sectors he follows closely include agriculture, manufacturing, energy and mining. He holds degrees in economics and journalism from the University of Minnesota.