They have the price of their own products in their costs.
First, the relationship between well costs (finding and development costs plus operating costs) and the producer’s breakeven price (price necessary to achieve a zero rate of return) is essentially linear. That means if costs drop by 50%––as they have––then the producer’s breakeven price drops by 50%, all other things being equal. So if a producer’s rate of return was $80/bbl two years ago, now it would probably be closer to $40/Bbl.So therefore non-cartel sector production should keep steadily increasing until it displaces all cartel sector imports.
Back from the Abyss - U.S. Producers Are Coming Back, Despite Low Prices - RBN Energy https://t.co/l7ChKs9aUQ pic.twitter.com/uaYDMd3s3Z— Rusty Braziel (@RustyBraziel) October 25, 2016