Why US Shale Oil Is In Trouble

This chart shows the break-even price per barrel for the various US shale oil plays:

http://www.bloomberg.com/news/2014-10-17/oil-is-cheap-but-not-so-cheap-that-americans-won-t-profit-from-it.html

This graphic is difficult to read, but you can clearly see that none of them are profitable if the price for oil drops below $40 per barrel.

Now take a look at these predictions:

http://www.forbes.com/sites/jessecolombo/2014/11/30/how-low-can-oil-go/

and

http://www.bizjournals.com/sanantonio/blog/morning-edition/2014/12/how-low-can-oil-go-exxon-ceo-says-itsprepared-for.html

Apparently a drop to $40 per barrel is not out of the question. And that would make all our shale oil unprofitable, possibly bankrupting those firms which borrowed heavily to sink and frac their wells:

http://www.zerohedge.com/news/2014-12-04/could-falling-oil-prices-spark-financial-crisis

What happened the last time the Saudis engaged in a price war with the US?

The last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans.

In 1986, the Saudis opened the spigot and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

http://www.bloomberg.com/news/2014-11-26/oil-bust-of-1986-reminds-u-s-drillers-of-price-war-risks.html

So, what's this all about? Is it just a price war, or do the Saudis want something else ... like getting Israel and/or the US to bomb Iran for them?

Update: Here's another report which suggests that oil may sink to $40 per barrel:

http://www.theguardian.com/business/2014/dec/07/oil-price-down-opec-american-shale

Another update: According to the Texas agency which issues air pollution permits for the facilities attached to oil and gas wells, this potential slowdown has not yet been seen by them. They have approximately 1,300 pending permit applications with another 400 on the way.

Third update: Canadian heavy is now below $50 per barrel:

http://www.zerohedge.com/news/2014-12-08/oil-prices-collapse-new-cycle-lows-canada-heavy-tumbles-under-50

Fourth update: Barron's is predicting that oil could drop to $35 per barrel in 2015:

http://online.barrons.com/articles/the-case-for-35-a-barrel-oil-1417845920

Fifth update: Here is another, more readable breakeven pricing graphic:

http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html

Sixth update: Emirates thinks oil may sink to $30 per barrel:

http://www.cnbc.com/id/102275654

Seventh update: Now there is talk of $20 per barrel oil:

http://www.zerohedge.com/news/2014-12-22/kazakhstan-prepares-40-oil-gary-schilling-says-oil-going-20

Since fracked wells deplete quickly, shale oil plays require nearly continual drilling. At a cost of $5 million to drill and frack each well, there is no way shale oil can keep up with the rest of the industry at $20 per barrel.