Read this Reuters article that came out today.

(Reuters) – A string of unforeseen events have reduced oil supply, helping to rebalance the world oil market and push price forecasts higher over the last month, a Reuters poll showed on Thursday.

These events are only unforeseen if you didn’t bother to try. I myself laid out exactly this sequence of events in 2014, along with predicting the survival of the US oil and gas boom.

But the damage that was done exceeded my wildest fears. The maneuvers of OPEC over the past 24 months have been nothing less than amateur. The wreckage from this schlock judgment; pervasive.

That said, I am not sure there will be many more bankruptcies in the oil and gas sector. They are all teetering on the edge, but with prospects of oil turning higher here in a balanced market, revenues and projects should begin to return.

In December of 2015, I bet that we’d see the market bottom within 6 months. I now feel more confident of that than I did then.

The looming debt maturities for the oil & gas sector are daunting, but still wait a few years in the distance. If revenues return in the second half of this year, investors can reasonable expect that the debt will be rolled over.

Financiers have no reason to fight this process…bankruptcy is not usually much kinder to debtors than shareholders. Better to gamble on the future than lose on the present.

The worst is behind us, I believe. But the road forward is going to be long as the industry picks up the pieces.

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Here’s a fun article. I expected this sometime last year, as it shows the largest oil sector firms understand what must be done.

In order to regain stability of the oil market, production needs to be brought in line with consumption. That is not rocket science. What is considerably more difficult is how that process is permitted to play out.

It’s the overpopulated island problem. Two men are stranded on an island with just enough food for one to survive. How many men survive?

No men survive. They both eat just enough food to ensure they both die, fighting each other the whole way. That’s just instincts.

Baker Hughes and Schlumberger are two of the biggest players in the services space. And they’re old and well connected and staffed by pretty smart people. I’m comforted that someone is finally forcing the weakest hands to wrap up their deaths, as in the long term this is going to minimize the damage to the US energy sector.

Hopefully the more stable services firms can come together, pick the US supply that needs to be idled, and shut it down. Waiting for these zombie oil companies to keel over themselves is growing tiresome.

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As 2015 comes to a close, now pushing this period of torment into 15 months, I am preparing myself mentally for another 6 months of oil price weakness. 2015 has seen a steady beat of oil and gas company bankruptcies which will turn into pseudo permanent decommissioning of oil and gas assets.

These assets will be absorbed into other corporate bodies at fire sale prices where they will remain economically idle for years. Their old masters will leave and not return to this industry.

Much of what happens next hinges on foreign nations. State owned oil companies usurped with the political appointees of increasingly desperate and mostly unelected rulers have been ratcheting up production, trying to stave off judgment day. The US oil production is one of the more fascinating social phenomenon of our time, as it lay bare the level of reliance that these places had on oil revenues keeping populations passive.

Would you have guessed that Venezuela’s Chavismo would be driven from power inside of 7 years, back in 2009? Most of us knew that the structure was unstable and expected something like this eventually. But US oil growth is almost single handedly responsible for deconstructing Chavismo and it did so in the pace of 15 short months.

As the next level of pain ratchets up, those of us with high cash levels sit tight and bide our time, while the less scrupulous who rode into late 2014 with none (or God forbid margin positions) get swallowed into the abyss.

After they are gone let’s see what’s left in 2016.

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2014 began with an intense implosion of overpriced tech stocks that destabilized players and set us up for nasty knock off effects. Months afterwards, energy names began to turn downward and started an at first slow descent; a black omen for anyone looking for a forward indicator.

Saudi Arabia decided to play the world’s worst move (effectively maiming OPEC), spiked the oil markets when they could least handle it, and sent oil into the abyss touching off a second massive sector implosion in oil and gas names. But not just oil & gas, as the market became terrified of economic stagnation led by fears out of Europe and Asia, and the entire energy sector followed oil down the hole.

We are now experiencing what I view as the third wave of the same phenomenon that began in early 2014, more than a year later, as the entire stock market collapses 10% in a short span of time, led by China’s markets and the intensely poor decision making of a command/control economy trying to have their cake and eat it too.

That being said, I haven’t yet seen any indication that the real economy is retracting.

Job growth seems present and in my own local markets where I have a good ear to the ground concerning hiring and pay policies, I am actually hearing talk of wage hikes. The last five years, our local job market at least was terrified of the HR monsters that were federal regulations (chiefly PPACA), not to mention we are still reeling from 2009 in some respects. But I think as we clear away from the implementation of these federal regulations, especially with rigid conservatives now holding fast against, we are going to start to see some wage growth. Employees are actually demanding it now, voting with their feet when they can.

This should do wonders for the economy.

With regards to oil specifically (which is chiefest of my concerns) the EIA is suggesting that the current imbalance between consumption and production of oil is 2 million barrels per day. This is the cause of our stockpiling and the foremost reason oil has sunk so far. Saudi Arabia’s move to curtail US production has been a failure and so far the long feared wave of insolvencies has held to a slow drip, even from the most precarious of businesses.

A 2 million barrel imbalance is not all that bad and I believe that, barring some sort of real demand destruction, we’ll just float along at these levels until the market becomes more comfortable with oversupply. I don’t think oversupply necessarily will force pricing lower as it would take a very specific set of circumstances which include not having a merger & acquisition brokerage occur. Yet we see M&A activity is very healthy in this current time period and I have to believe that if oil goes much lower you would see US markets consolidate aggressively.

Besides this, the global imbalance is equivalent to about one major oil producer globally. And in this current environment, we also should be aware that civil unrest is a powerful destabilizer of oil production (via civil war) with positive likelihood.

Sources of new supply are questionable. New well development at these oil prices are unprofitable and only large state sponsored development is probable. Yet, economic weakness is harming state budgets and may make it difficult to attain approval for unprofitable ventures. The largest foreign state controlled sources of oil are also some of the most sensitive to this oil price shock.

Altogether, I continue to believe that the most likely outcome in oil markets is unknowable yet still predictable production locations going offline from internal unrest. Venezuela is pegged as the most likely location for such an event, do to the extreme nature of their current state of affairs, and because their leadership is proven incapable of handling the situation. But Venezuela is hardly the only candidate; just the best.

Outside of that, the economic uncertainty that hit everyone’s radar earlier this summer is now coming back under control. Bond yields continue to subside across all major foreign issuers, and I would not be surprised if the EU crisis in particular remains hidden from view for another full two years.

Domestically, I expect monetary policy to remain accommodating, but would not be surprised if Yellen raises interest rates some token amount, to try and claim some victory for the Federal Reserve. I cannot expect how the market will react to his, but believe the raise will be mostly symbolic anyway, so any effects should be temporary in nature.

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We’re still in the midst of watching the oil industry unravel in spectacular fashion. I do not feel comfortable even uttering the word “bottom”, not even in jest, for the fear the entire structure would unwind and usher in $10 oil for two decades.

We need more expensive oil. I know you do not want to hear that; why just a few weeks ago I saw a long dormant Hummer H3 roaming the tundra planes of southeast Michigan. A once formidable species, these vehicles could once be seen all across the North American continent.

Their reemergence was a startling sign. Gasoline has gotten cheap.

It is comforting to think of these lower input costs as an unchallenged blessing to America. It is more complicated than that, I am afraid.

High oil prices have been one of very few elements that has actually helped foster stability in third world countries. Watching the recent turmoil and wars, it is easy to forget just how unnaturally peaceful the most recent decades have been in the grand scheme of things. Oil money has been used to weave the social fabric in these places and if oil prices stay low for a sustained period, we are going to see much more egregious cases of foreign sovereign collapse.

Oil prices have also driven the US recovery. The shale revolution was named thusly for a reason; job growth in the US would not have been possible without the advances in shale oil. This is a major pillar of the US recovery and without it our economy is going to suffer. High input costs were a minor inconvenience that came with job growth.

And of course there is the euro. The euro may just be the cause of the oil collapse in and of itself. I cannot say for certain yet, but I am suspicious. The euro and dollar are now almost at parity and this has crippled US exporters. If our own markets are suddenly sloshing around with oil to spare, it is because we are suddenly priced out of foreign markets. This is a precarious barrier…how cheap would oil need to be in this country to enable exporters to compete against euro/dollar parity? The dollar is going to isolate our business and tank us if we let this continue.

We need to start taking steps to regain stability. Bernanke would have never let this happen. Yellen is pushing for normalization of policy and this is not a bad thing. But they are far too comfortable watching a currency move like this happen with our probably largest trade group. We need a weaker dollar and we need more expensive oil and we need it now.

Now, because oil is so cheap, struggling shale producers are clocking overtime to meet payments. This is the exact opposite of what the oil markets need to find a bottom – a glut of even more oil.

In addition to addressing currency and demand issues, we really need a JP Morgan figure to emerge and start brokering some M&A moves that stitch up the supply side. Oil markets are leaking supply uncontrollably and this is going to cause extensive damage if not treated like the dire risk that it is.

The weak hands need to be either bought out or flushed or secured with long term financing. If we can’t shut some of these wells off, we’re going to have irreparable damage on our hands.

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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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