I am getting constructive on oil markets, and starting to feel more comfortable with my BAS, VOC and HCLP positions. I may just edge in a little further, in another month or so.

I understand how dark prospects for oil are right now; we have numerous estimates calling for the total dismantling of oil, sending it into the $20’s, and suddenly those forecasts aren’t feeling quite so fanciful. It’s the fear creeping up in people.

But how many of these forecasts existed before last October? Tell me that, will you? Back in July, it was only a matter of how many $10’s we could stack on top of the $100 mark. Nobody I know was seriously calling for sub-$40 oil. Even those of us who were expecting a pullback had the $70-90 range as a guide. Which is why almost everybody long got smoked. Even scaling a position back to half the size wasn’t enough to escape this (trust me I know).

Which leads me to think a lot of these “experts” talking up ultra cheap crude oil are just trolling the public. Goldman Sachs has a pretty horrible record of forecasting commodities, actually. That’s not how commodity storage facilities work – there you have cheap cost to store and opportunistic offerings and purchases. You also have a futures trading desk which you can tie into to cooperate with. But you still don’t know what’s going to actually happen. You just roll with it and make money as you can.

Names like BAS are chopping 8% every other which way. But they are working a floor in, and steadily, slowly, offering higher prices.

And what about the demand for crude globally? Yes there was a (not really that) significant excess supply gap, which is growing. But that gap existed with $100 crude oil and well development pricing in $100 crude oil. We are seeing just massive layoffs as the industry reacts to new facts on the ground. So future supply is being taken offline.

And to boot, oil is cheap now. So cheap.

Look at industrial output in the Eurozone; one part oil prices, one part a cheap currency. Is that killing the US? Nope, we seem to be absorbing the currency strength but still happily putting along. Cheap oil lifts all boats. I was very concerned that oil prices would make a serious headwind to the US – and certainly on some level it is, gross – but net jobs are working out fine as any complications from the Dakota’s are being more than offset.

Currency games are fun, but net economic growth is all that really matters at the end of the day. If a few thousand losses in one spot beget a few thousand gains in another, then activity will continue apace and crude demand will keep growing. You’re only really in trouble if you start getting net losses.

I think the oil market got way ahead of itself as unabashed speculators got their comeuppance. This is drawing to a close and I wouldn’t be surprised if oil abruptly rediscovers that $70-90 range we all sort of guessed was a fair price. I would not count on crude oil hanging out at levels from the 20th century, because that’s just not how extraction costs have trended.

And ultimately, no matter what crude oil does, I think there are going to be limits to how much devastation we see in oil companies. It doesn’t take much to swing the oil market back into balance; the imbalance is really not that significant. If oil sustains these prices, it will be because it is profitable for enough US shale companies to do so. If US shale cripples, you are going to see way more than just US shale cripple. Which is sort of a Catch 22.

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I own BAS, VOC and HCLP, so yes today is welcome relief. I have a lot of upside to get back to break even (and honestly, more yet to hit my old highs). But I also know better than to start shooting off fireworks and spitting on oils detractors.

So far, word out of the oilfield services is that operations continue apace. This is not unexpected though, as the concern has always been for what would happen if oil prices don’t make further wells economical. Right now, future spending is null and that will be what ultimately drives the prices of companies like BAS (hence the massive drawdown in the name).

As for HCLP, the company is awesome and they have long term supply contracts signed which mandate minimum deliveries, so they are more prepared to weather the storm. But ultimately, again, demand for their product (frac sand) trumps financial tomfoolery like supply agreements.

VOC is a direct play on oil prices, and here I am getting hosed. I need price recovery. I thought I knew what VOC’s oil extraction cost was (which should have spared me concerns of a total collapse), but now the Trust is playing loose and fast, claiming the expenses have dramatically changed. Right… It smells bad, but I would stop short of calamity. Unpleasantness, though, may be an apt description.

I hope the accountants involved all burn in hell.

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The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

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Okay today is strong. There are dark spots, like the dollar and bonds. I know I said I would wait, but if I apply just 25% cash at these levels, I could get back to even quickly enough.

So I bought BAS, HCLP, and some VOC.

75% cash.

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Something is just…wrong here. Isn’t it?

A supermarket chain in the UK dropped that much? Wouldn’t oil have helped them? Greece plunged 11%? The EURUSD is dead, plumming along at 1.24.

These are 2009 type moves we’re seeing here. I’ve been looking at each of these events in a bottle, because I was blind to the obscene money I was making. Taken together, they spell a rather dark picture.

I didn’t sell any BAS, just CCJ, VOC and HCLP. If we get a good relief rally, well…let’s just say, I’m skittish now.

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I deployed 2.5% of my account to buy BAS at $12.61.

I put another 2% of my account into HCLP for $47.18.

I put another 3% of my account into VOC for $9.83.

Small margin balance. I am not just commenting when I say I am betting on oil. What we are experience in the oil market is not at all unusual. What is unusual is the sheer lengths that people have taken to sell oil stocks, with almost no evidence, other than a little correction in oil prices, that they are right.

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