The US discovered a new drilling technique called Hydraulic Fracturing or Fracking to increase production of oil and at the same time lower its price in the market given that the demand is also ever-increasing while supply is declining. Since, discoveries of oil outside US become harder and conventional drilling is becoming less successful, the urge to pursue fracking is finely tuned even if disadvantages weighed more than its advantage (Adams, 2015).
The Big Five energy majors namely- BP, Chevron, ExxonMobil, Royal Dutch Shell and Total- proved that oil reserves really dropped to 78.6 billion barrels from 80 billion barrels. However, these majors are not the most efficient explorers of the said reserves (Adams, 2015).
For that reason, fracking would be the most efficient way to solve the problem. According to the market research firm Luz Research, fracking could increase the world’s petroleum supplies for the coming years to 10.2 trillion barrels (Woody, 2013). In this way, since supply and price is inversely related with each other, most likely the oil price would trim down.
To begin with, fracking is when chemical-laced water is injected to break up subterranean rock formations to extract oil and natural gas (Woody, 2013). Along with it is the Enhanced Oil Recovery (EOR) from solar-powered steam injection to the use of microorganism in order to extend the life of oil fields and gain access to unconventional petroleum reserves like oil sands.
However, the downsides of the said technique are as follow— There have been environmental issues with regards to the use of water, pollution and climate change. First, the technique is contested and suspected to divert the essential purpose of water. Second, carbon extraction of fossil fuels would result to pollution and climate change.
In contrast to that is the advantage of fracking to the supply and price of oil in the market. Recent oil price in US fell after US inventories increased by 8.9 million barrels- the highest for this time of year for at least past 80 years. Oil prices had fallen according to a report from the US government’s energy statistics agency. By late trading, the US crude market Nymex March West Intermediate was now $44.08 from the previous price of $44.53 (Crooks, 2015).
Oil prices have fallen rapidly since the relentless output growth of US and sustained OPEC production coincided resulting to a slowdown in global demand (Hornby & Raval, 2015). But, the world’s largest oil importer which is China has been unable to take advantage of low international crude prices because of insufficient storage capacity which is another problem to be solved (Hornby & Raval, 2015).
The shift in the asset should lead to a more stable cash flows, said analyst (Adams, 2015). In addition to that, effect of crude price fall in the US is quite overwhelming, resulting to a raise in their sold shares worth $10.8 billion (Crooks, 2015). Moreover, bankers said the ability to raise equity capital signals continued investor interest in the sector in spite of the oil price slump (Crooks, 2015).
In conclusion, fracking is indeed effective in reducing the price of oil. Nevertheless, we cannot affirm that this technique would be widely accepted since opposing views are to be sure to result to other problems. But economically, it has positively affected oil price in the market.