Economic security

Oil Prices Are Sky-High: What Happened to Fracking?

Remember the good old days when experts decided that the power of the OPEC oil cartel to control oil prices had come to an end? That fracking had made the United States the swing producer, ramping up production any time prices started to rise? That the future of the world’s economy would be based on forever-cheap oil and gasoline?

It was only two years ago that the price of the benchmark U.S. crude oil sold at an average price of a bit above $40 per barrel. Not as much fun for consumers as the $14 average price in 1998, but a lot better than the almost $100 price average crude fetched in 2008.

Until very recently the received wisdom was that any time the price exceeded something like $50 per barrel, U.S. producers would ramp up production from the ample supplies of shale oil they had tapped using fracking technology, and drive prices back down. Last week the oil market proved once again that it is no more predictable than the stock market: it hit more than $71 per barrel. And is headed higher. (The price of Brent crude, the European benchmark, is about $10 per barrel higher.)

It seems that the law of supply and demand has not been repealed. Demand is rising in response to the increased rate of economic growth, especially here in the United States, but also in most major economies. Meanwhile, supply is being constrained for a variety of reasons.