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The shale boom has become a check on the market's long-term volatility

The array of producers in the U.S. oil patch is pretty much the opposite of a cartel, but a new report distills a key reason why companies' individual decisions have together become such a powerful market force.

Reproduced from Federal Reserve Bank of Dallas; Chart: Axios Visuals

Driving the news: "The emergence of U.S. shale production seems to be playing a large role in anchoring long-term oil prices," notes the Dallas Fed analysis.

  • A big takeaway is that shale now acts as a check on long-term volatility.
  • Shale producers "represent strong forces that should keep long-dated futures prices from rising too high or falling too low," per the report.

Why it matters: The trajectory and range of oil prices is important for many reasons, like: consumer costs at the pump, planning decisions for crude oil buyers, and analyses of future energy demand and emissions.

What they did: The report explores the reduction in the price point for drilling profitable new wells in recent years, called breakeven prices, and their link to oil futures' markets.

  • It looks at breakevens in the Kansas City Fed and Dallas Fed regions, which together include Texas, Oklahoma, New Mexico and other producing areas.

What they found: Shale and other U.S. production can sand down the market's volatile edges over time, because small price increases spur a lot of new production, even at a modest price. That's because shale wells can be drilled and brought online really fast compared to conventional projects.

  • "[S]hale production means there is a much larger amount of supply that can be called into action given a much smaller price increase than in the past," the report notes.
  • “There’s a significant number of projects that can be called upon in this $50-$60 [per barrel] range,” economist and co-author Kunal Patel tells me.

By the numbers: The average breakeven price in the Dallas Fed region, which includes the surging Permian Basin, has come down 4% over the past year to $50-per-barrel, although there's lots of variation.

  • Costs have been falling for offshore and non-shale onshore wells too.

The big picture: The U.S. is now the world's largest oil producer at over 12 million barrels per day, and the shale boom is a big reason why, with roughly a third of that production coming from the Permian Basin alone.

What's next? Look for U.S. shale to keep influencing the market even as OPEC and Russia collaborate on production levels.

  • The International Energy Agency projects that the U.S. will account for the largest share of global production increases over the next 5 years.

Go deeper: A closer look at the oil boom's climate effect