Development of tight oil resources in the USA: Exploitation costs and effect of macroeconomic indicators in a volatile oil price environment

Abstract

Large scale development of tight oil resources in the USA started after 2010 with a following five-year period of favourable steady increase in crude oil price. During this relatively short expansion cycle, operating and capital expenses changed drastically for main tight oil plays due to technological improvements in both well drilling and completion, the expansion of the service sector as well as the loose government monetary policy which allowed favourable financing. This paper analysed trends in costs during the expansion period, as well as the correlation of oil price to a number of operating rigs and production quotas. After 2008/2009, the world financial crisis economy recovery in the USA was somewhat sluggish and it caused an extremely volatile environment in both equity and commodity markets. In such a volatile environment intraday crude oil prices, as well as other commodities and equities, show a significant reaction to monthly published macroeconomic indicator reports, which give better overviews of trends in economic recovery. Prior to the announcement, these reports have always forecasted value determined by a consensus among market analysts. Therefore, any positive or negative surprise in real value tends to influence the price of oil. This paper investigated the influence of such macroeconomic reports to closing intraday oil price, as well as the effect of other important daily market indices. Analysis showed that only the Producer Price Index (PPI), among other indicators, has a statistical significance of affecting intraday closing oil price.