History will record that in the last decade, the American oil industry staged one of the most miraculous recoveries in economic history.  In its own way, this recovery ranks with the resurrection of the Japanese and German economies after WWII.  The American oil comeback was driven, of course, by fracking.  Recent reports indicate that despite facing strong headwinds, the fracking revolution continues to produce wonders.

These headwinds include the dramatically lower oil prices brought about by the decision of several major OPEC countries, most importantly Saudi Arabia, to vastly expand production.  This expansion has dropped the price of oil from $100 per barrel to around $45.  While this "new normal" price is below what these OPEC and other states (such as Russia) need to keep from drawing down their reserves of foreign currencies, these countries are producing as much oil as they must to keep their market share and give their citizens the level of support that keeps those citizens from becoming rebels.  And some of these countries are pursuing a strategy aimed at stopping the fracking rebirth of American oil.

Certainly, the sustained period of low prices is making it a challenge for domestic energy producers – even the biggest ones – to remain profitable.  And it has caused the American resurgence to temporarily stall.  The most recent data show that the U.S. dropped to 9.3 million barrels per day (BPD) in June, down 3% from its 2015 peak hit in April.  Citi Research estimates another drop of as much as 500,000 BPD as oil producers face capital shortages – the equivalent of ExxonMobil's total U.S. production.

The Citi report predicts a 15% drop in banks' collective credit available to oil and gas companies – which would mean about a $10-billion shortfall in liquidity.  No doubt more of the weaker players will fail (thus joining the eight companies that have already declared bankruptcy this year), especially as more and more of the insurance many of them have in the form of hedges begins to expire.  Simmons & Company International reports that three dozen U.S. drilling companies have legacy-hedging contracts that guarantee an average price of $80 a barrel on 33% of their oil this year, but that guaranteed price drops to only $67 average per barrel next year, and that only on about 18% of their oil.  And David Tumeron, a petroleum industry analyst at Wells Fargo, predicts that if oil hits and remains at $40 a barrel for half a year, there will be a "final flush" of weaker companies out of the industry.

Even now, the number of energy companies that are defaulting is on the rise.  That default rate has increased from 3.3% in August to a current rate of 4.8%.  That is the highest the energy industry has seen since 1999.  All industries see defaults – the average rate for all industry is 2.9% – but the energy industry is going through a shakeout.

Despite this financial turbulence, the fracking industry continues to become more profitable at low prices.  In other words, low prices are working market magic to dramatically increase the efficiency of the fracking industry.  As another report notes, there are a number of technological innovations being adapted or explored to drive down drilling costs.

Start with "refracking."  As the name implies, refracking involves using the more efficient new methods on wells fracked with older methods.  For example, Devon Energy is refracking old wells in the Barnett field using newer techniques it developed in the Permian and Eagle Ford fields, such as using finer-grained sand and new sealants to force open new pathways for oil and natural gas.

Schlumberger – which estimates that there are 10,000 older wells ripe for refracking – is employing fiber-optic tools to refine the process.  Also, refracking companies are using advanced software to determine where exactly to apply the sand, water, and chemicals, and how to fine-tune the balance of the mixture.

Another innovation, being explored by Glori Energy, is to stimulate the microbes present in conventional oil fields to multiply (by feeding them a high-nutrient diet), which in turn allows the microbes to help the crude oil flow more freely through the rock.  Early studies indicate that this creative hybrid of mechanical and biological technology can increase the amount of recoverable oil and extend well life by about a third.

Yet another company – Well-Dog – is using lasers to locate oil and gas deposits in shale fields, which will cut down on exploration costs.  And GE's energy division has announced that it will increase its R&D budget this year.

This phenomenon – of lower prices forcing innovation – is not limited to fracking.  Another recent report by Bloomberg suggests that the same process is at work in Canada with regards to the extraction of oil from "tar" or oil sands.

Canada's oil sands deposits are enormous.  The biggest fields are in Alberta, which alone have proven crude oil reserves that are third in the world after Saudi Arabia and Venezuela.  But extracting the oil from the sands – which have the consistency of ice-cold peanut butter – is tricky.

One current method of extraction – presently used in about half the production – involves strip-mining surface oil-sands and then mixing in hot water.  Another current method, especially useful for reserves too deep to be surface-mined, is steam-assisted gravity drainage (SAGD).  SAGD involves drilling two parallel wells and injecting steam into the top one, which releases melted crude into the lower well to be pumped to the surface.  But SAGD production costs about $65 per barrel.  At today's prices, about half the potential supply is not worth developing.

So a number of oil-sand producers are investing in new extraction methods.  One being developed by Suncor and four partners involves using radio frequency (RF) radiation to melt the oil sands.  Those heated regions are then diluted by a recyclable solvent and pumped.  This technology looks to cut on-site energy use by three fourths and surface disruption by half.  If it lives up to promise, Suncor will likely replace the SAGD method with the RF one.  The company expects to have the new method tested on a wide scale in at most 18 months.

Another new method is being explored by Cenovus Energy.  That company will launch a large-scale SAGD project using butane as a solvent, which should permit the extraction of oil at lower temperatures.  This in turn should reduce the natural gas and water needed to make steam.  The project (the Narrows Lake facility) has been temporarily put on hold because of the drop in oil prices, but it will be put into operation fairly soon and produce about 130,000 BPD.

Indeed, one expert says that solvents may replace SAGD altogether, and within a decade, even solvents may be replace by selectively igniting small areas of a field to free up the oil in the surrounding areas.

In sum, the theory that market forces force economic efficiency is being proven once again, with the consumers getting ever more product for ever lower prices.  If we had a president even remotely capable of understanding economics, he would get the government out of the way of this creativity.  He would stop permanently locking away government lands from any development.  And he would remove all impediments to the exportation of American oil, so that the price of oil would stabilize and domestic producers could find adequate capital.

But we don't have such a president.  Nor, with Donald Trump and Bernie Sanders currently leading in their nomination races, are we likely to get one any time soon.

Gary Jason is an academic philosopher and a senior editor at Liberty.  His new books, Disturbing Thoughts: Unorthodox Writings on Timely Topics and Philosophic Thoughts: Essays on Logic and Philosophy are both available through Amazon.