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Low-Cost Oil Is Here to Stay

Sustainably lower costs to extract U.S. shale oil should keep a lid on prices.

Preston Caldwell: Recently, the Morningstar energy team has undertaken a deep dive into the break-even economics of U.S. shale. Because U.S. shale is the marginal supplier in our global oil framework, shale break-evens are a key determinant of our long-term oil price expectations.

In our view, sustainably lower shale break-evens mean the era of low-cost oil is here to stay. Shale break-evens have fallen sharply, from about $90 per barrel (WTI) in 2013 to about $44 in 2016, and we project them to rise no higher than $55 by 2020.