Cheap Crude Hasn’t Crippled the U.S. Shale Boom

The oil bust is almost a year old. Though prices began sliding last summer, they didn't truly fall off a cliff until Thanksgiving Day, when OPEC announced it would continue pumping oil at the same rate, rather than pull back in the face of the American shale boom. The move was interpreted as an attempt to knock out U.S. drillers, who tended to have higher production costs than most members of the cartel. Over the next two months, the price of a barrel of oil crashed 40 percent to less than $45. After briefly crawling above $60, oil prices have fallen back into the $40 range.

Cheap crude was supposed to cripple the U.S. shale boom, but the industry has proved surprisingly resilient. Costs are down, and better technology is allowing shale drillers to revive older wells and pump more crude with far fewer rigs. They've also recapitalized, borrowing heavily from Wall Street. That's bought them time to hold out for higher prices, and re-calibrate around lower ones, but it's also led to a big problem: Higher borrowing costs are eating into profits.