While oil and gas supplies are way, way up, it seems that may not be the case forever.  Some people are projecting that the oil oversupply may end as early as 4Q 2016, and it seems that pretty nearly everybody agrees that the gas oversupply is going to be over sometime in 2017.  And just a couple of weeks ago, Saudi Arabia, Russia, Venezuela, and Qatar got together and agreed in principle that it would be a good idea to freeze (not cut back) production at January 2016 levels.  They wanted Iran to get in on it, but Iran won’t. They want to get back to making money on oil after sanctions against them were lifted.  American production will be down about 600,000 barrels per day at some point in 2016, but Iran will make up that difference.  It looks pretty bleak for the American fracking industry.

The real question becomes whether the industry will actually come close to balancing demand with supply.  At some point demand for oil is going to outpace production.  There are some people saying that the industry’s supply chain for labor, parts, machines, etc., is going to be in such a shambles that it won’t be able to ramp production back up in time to counteract a gigantic swing in energy prices.  Watch out for high prices at the pump this coming Christmas and in your utility bills the Christmas after.  If that happens, we could be in for a very volatile energy market for a few years.

In the same vein of thought, Daniel Jones over at Seeking Alpha thinks that natural gas production is going to drop off a lot before the end of this year.  A combination of high production and low demand has driven prices low enough to drive a lot of drillers into the ground, so to speak.  Fewer drillers means fewer new wells.  We need new wells to keep production numbers up because the old wells naturally experience a decline in production as reservoir pressured drops with production.  The lack of new wells means a drop off in production.

The long and short of it all is that we’re in for a serious rebound in oil and gas prices sometime in the future, but that future may not be near enough to save some of the oil and gas companies out there.