Transports are Tanking

[william the wie]

Therefore oil will decline in price. But how far and why does that matter?

Well rig count has gone up on the assumption of $40-50/bbl being the price range.

All current wells can pay interest as long as prices stay above $40/bbl

Therefore supply will not decline until oil sinks below $40/bbl.

There will be a lag as bankruptcy proceedings and pipeline construction work through the system so the survival price level will become something like @ $35/bbl. (I am assuming that the coming shakeout will have results similar to the last shakeout.)

Fracking costs will continue to decline and pipeline construction will continue to increase the average price available at the wellhead. Therefore the run up in supply will be faster the next time transport indexes go up as the survival price level goes way down on existing wells. Therefore the next decline after the current one that has just begun will take oil even further down.

That also means a lot of bondholders will get burned. That will get hairy.

 

[Ringel05]

Burn high sulfur content coal.........

 

[william the wie]

Not needed we're exporting LNG and that means we can substitute for coal.