Price Responsiveness of Shale Oil: A Bakken Case Study

We estimated oil supply from hydraulically fractured horizontal wells completed in North Dakota from March 2015 through May 2019. We modeled impacts on production of price, capital costs, technological progress, well-to-well interference, and location. Two models were developed: One considered production to be a continuous stream (omitting gaps) and the other allowed that production may be discontinuous, with starts, shut-ins, and re-starts. Both gave estimates of price elasticity higher than that of non-OPEC oil supply in general. We confirmed the rapid decline rates from early peaks that characterize shale wells and demonstrated that, although various factors can shift production up or down, the decline rate remains consistent. Given this, and a much shorter development time, shale oil can be ramped up and down more quickly than conventional oil in North America today. Consequently, the price response of shale oil tends to dampen the long-term price cycle and moderate the price shocks that have plagued the market, and the macroeconomy.