US oil is coming from new sources.
US oil is coming from new sources.

Only a year of time and about one thousand miles separate the site of America’s last oil boom from the location of its newest one. Last February, after the price of crude oil had reached what would become its lowest in more than a decade, The New York Times and other media outlets zeroed in on the North Dakota boom towns most adversely impacted by the developments. It was in these sparsely populated areas where major drilling operations began around 2010, when the price of oil averaged around $80 per barrel.

In early 2016, however, the boom had leveled off, first as a slump, then as a full-on bust. At its worst, according to data from the U.S. Energy Information Administration, crude oil shipped from Cushing, OK could barely fetch $30 per barrel. Any early summer rally and successful negotiations between global powers moved the going price of oil back within $50 per barrel, but the recovery has been slow and uncertain.

The effect of the market’s behavior was evident with a simple drive through one of many “man camps” in North Dakota – hastily erected communities where a huge influx of oil workers could live. Anyone who could make it to the remote Bakken region with the skills and willingness to work on a rig could easily make a salary approaching six figures, unheard of for similar jobs in the U.S. But once the price of oil fell, these jobs and the community built around them vanished. The New York Times reporter who visited the area in February 2016 wrote of a noticeable slowdown compared to just a few years earlier.

Only a year later, American oil is booming again, just in a different part of the country. Bloomberg Businessweek reported March 7 that oil drillers stationed in and around the Permian Basin of rural West Texas are scrambling to find workers and materials. The people and labor to support a booming oil extraction simply can’t keep up with demand.

“Five years ago, the thought of $55-a-barrel oil would have given Piotr Galitzine heartburn,” Bloomberg’s David Wethe wrote. “Now it’s keeping one of his steel-pipe shops in Houston open 24/7 and fueling a flurry of orders.”

New extraction methods
Even with crude oil selling for almost half as much per barrel as it was eight years ago, oil producers are still finding ways to extract it from shale and sandstone deep underground. Using a number of methods including hydraulic fracturing, this oil once considered too expensive to bother with can be recovered and refined. However, it’s still coming at a high cost that is only barely covered by oil’s $50 per barrel price.

What’s more, even high salaries aren’t helping to attract much-needed workers to the area. Bloomberg noted that one well operator was offering around $80,000 per year to fill truck driver positions, and still unable to entice enough people.

Buying the land to drill on could even be bankrupting. Oil industry consulting group Wood Mackenzie told Bloomberg that drillers have been paying as much as $60,000 per acre for drilling rights, 50 times more than four years earlier. The list of expenses gets higher down the list: Daily rental rates for drilling rigs average $20,000, compared to $17,000 last year. The price of sand, used to blast and fill holes deep underground, has risen 20 percent to $35 per ton.

If anything has stayed relatively constant in the oil industry, it’s the pervasive sense of uncertainty. Prices for men and materials in the Permian Basin are currently inflated in the hope that these bets will pay off when demand for oil increases. That situation is made even more likely by the fact that OPEC is having moderate success curbing its own output.

At the same time, oil’s fortunes could just as easily fall the other direction. Resources could dry up, not to mention cash or even sheer need for oil. Perhaps consumers in the U.S. and the world over have gotten used to cheap oil, and will take drastic steps to keep it that way. Regardless, volatility has been and likely will remain a hallmark of energy markets.