What is 'Shale Oil'

Shale oil is a type of unconventional oil found in shale formations that must be hydraulically fractured to extract the oil. Shale oil can refer to two types of oil. It may refer to crude oil that is found within shale formations or to oil that is extracted from oil shale. Oil shale is a type of sedimentary rock that has low permeability and which has bituminous-like solids that can be liquefied during the extraction process.

BREAKING DOWN 'Shale Oil'

Shale oil extraction was made possible with the development of horizontal drilling techniques and hydraulic fracturing (“fracking”) that has allowed oil and natural gas producers to extract resources from shale rock and other low-permeability rock formations. Development of these techniques has grown rapidly since the 1950s, with the discovery and exploitation of shale formations in the United States throughout the 1970s and 1980s. In the United States the largest formations of shale providing shale oil are found in the Permian, Eagle Ford and Bakken Basins. 

Shale oil and shale gas formations can be found around the world. Countries with the largest amount of technically recoverable shale oil resources include Russia, the United States, China, Argentina and Libya. In 2013, the U.S. Energy Information Administration (EIA) estimated that 345 billion barrels of shale oil might be technically recoverable, making up approximately 11% of total crude oil resources.

Producing shale oil from shale rock has traditionally been more expensive than conventional crude oil and could have a more destructive impact on the environment. U.S. production of tight oil has increased significantly since 2010, driven by technological improvements that have reduced drilling costs and improved drilling efficiency in major shale plays such as the Bakken, Eagle Ford and the Permian Basin.

Tight Oil Is Industry Norm

The oil and natural gas industry often refers to “tight oil” rather than shale oil when estimating production and resources. This is because shale oil may be extracted from rock formations that include sandstone and carbonates in addition to shale formations. Production from tight oil plays surpassed 50% of total U.S. oil production in 2015 when tight oil production reached 4.9 million barrels per day. The EIA estimates that U.S. tight oil production will increase to more than 6 million barrels per day in the coming decade, making up most of total U.S. oil production. After 2026, tight oil production remains relatively constant through 2040 according to their latest estimates.

RELATED TERMS
  1. Oil Shale

    Oil shale is a sedimentary rock containing enough kerogen that ...
  2. Fracking

    Fracking is a slang term for hydraulic fracturing.
  3. Horizontal Well

    A horizontal well is an oil or gas well that is dug at an angle ...
  4. Oil Field

    An oil field is a tract of land used for extracting petroleum, ...
  5. Day Rate (Oil Drilling)

    Day rate is the amount a drilling contractor gets paid by the ...
  6. Hydraulic Fracturing

    Hydraulic fracturing stimulates better flow in oil and gas plays ...
Related Articles
  1. Investing

    U.S. Shale Oil Production: The Rise and Fall

    Low oil prices are taking their toll on U.S. shale oil producers, but their rise over the last decade is evidence of increasing U.S. energy independence.
  2. Investing

    The 3 Best ETFs to Bet On a U.S. Shale Industry Rebound (XES, PSCE)

    Learn three ETF strategies and corresponding ETFs to bet on a rebound for U.S. shale oil, including indirect plays, hedging and focused exposure strategies.
  3. Investing

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  4. Financial Advisor

    Oil Prices Expected to Surge in 2017

    Oil has made headlines for its plummeting prices this year. When will prices rise again?
  5. Investing

    Want To Start Trading Oil? Understand The Basics First

    The overall economics of oil extraction is that there is money in it - both for extraction companies and their investors.
  6. Investing

    Peak Oil: What To Do When The Wells Run Dry

    Find out how to invest and protect your investments in this slippery sector.
  7. Investing

    What a $20 USD Barrel Means For the US Oil Industry

    Read about Goldman Sachs' prediction that oil prices could go as low as $20 a barrel. Understand how low prices impact companies in the U.S. oil sector.
  8. Financial Advisor

    The US States That Produce the Most Oil

    Learn what eight states produce over 90% of U.S. oil, and how fracking has helped the United States become the world's largest oil-producing nation.
  9. Investing

    Top 6 Oil-Producing States

    Check out the U.S. states that produce the most barrels of crude oil each year.
  10. Investing

    How Low Can Oil Prices Go?

    Record low oil prices are a welcome development for consumers, but oil companies are struggling with choosing market share over profitability.
RELATED FAQS
  1. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
  2. Why did oil prices drop so much in 2014?

    Learn the roles that decreased global demand, new supply sources in North America, and actions taken by Saudi Arabia played ... Read Answer >>
  3. How has fracking helped the U.S. to decrease dependence on foreign oil?

    Learn about the drilling technique referred to as fracking, and discover how this technology has significantly reduced U.S. ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center