The oil industry, and perhaps the global economy, is standing at a crossroads. Down one path, the storm is over — and it has been a major storm. Tens of thousands of jobs lost, billions of dollars in capital evaporated, and the promise of energy independence broken. Yet down this path is the promise of recovery and renewed growth, albeit slow.

Down the other path is the realization that we are now simply in the eye of the storm. On the other side of the eye stands a deepening of the oil crisis. And with it, the implication of economic pain that will cripple the global economy.

These two scenarios are actually being predicted in tandem. And both with valid arguments.

Path One: Oilmaggedon

Citibank has put it in perspective. The oil industry is in such trouble that the global economy is being threatened. In a recent New York Daily magazine article, a Citi strategist warned that due to the extended oil price collapse, the global economy “appears to be trapped in a death spiral.” Just because oil prices are coming back, that doesn’t mean the worst is over. Recall last Summer when the same appeared to be happening. Prices tanked to the low $40’s then charged back to the $60’s, and then eventually into the high $20’s.

Citi’s assessment is clear and easy to understand: weak global growth results in continued depressed oil prices as demand weakens under over-supply. This results in a stronger U.S. dollar against foreign currency, which is actually not good in this scenario. Here’s why as explained in a January 2015 Forbes article, “A rising dollar relative to the currencies of our trading partners generally makes our imports cheaper to our consumers and our exports more expensive to foreign buyers.” Though this is good for consumers in the short term, it is bad for U.S. exports which become ever more expensive against week foreign purchasing power.

A strong U.S. dollar puts downward pressure on global commodity prices which in turn hurts developing economies. This weakens global growth which increases demand for the U.S. dollar, which in turn puts negative pressure on global prices and thus a “death spiral.”

According to Citi, this spiral repeats “until we arrive at “Oilmageddon,” an economic apocalypse defined by perpetually low oil prices and a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”

Where once shale producers needed $60 - $70 a barrel to profit, they are now profiting at $40 - $45.

Why a Strong Dollar Is Bad — at Present

Though a bit confusing, it makes sense. A strong dollar becomes a net negative when our economy is weak — low capacity utilization (used to measure the rate at which potential productivity/output is being met) and high unemployment increase trade deficits which basically means, we buy more imports and sell less exports. Our money leaves the economy.

According to Forbes contributor and former Dallas Fed President, Bob McTeer, “a stronger dollar reduces the dollar price of imports and makes them more affordable to domestic consumers. Some industries that compete with those imports will be hurt by the greater competition, but in a robust, fully-employed economy their adjustments shouldn’t be too painful.”

The key point is that a strong economy can handle this adjustment. But our economy is much weaker than the government is telling us.

The Reality of Unemployment

Despite the reported “progress” that our economy has made since the recession, most Americans are very aware that our economy is in trouble and the real numbers reflect it. Despite unemployment being reported at 4.9 percent in January 2016 down from a 2009 high of 10 percent in October 2009, the actual number of those unemployed has been masked by a typical data reporting trick employed by the Feds for decades.

The unemployment rate in the United States is defined by the Bureau of Labor Statistics (BLS) as the total civilian labor force (of working age and able to work) divided by the number of people “who are jobless, actively seeking work, and available to take a job.” An unemployed person, by definition, is actually one who is receiving unemployment benefits. Once those benefits are exhausted, that person is moved out of the “unemployed” category and placed in what amounts to work force purgatory — the “no longer in the workforce” category. But in reality, obviously, these people are still unemployed.

The Weak Economy

As of January 2016, there were 252,397,000 individuals between the ages of 16 and 50 considered part of the “Civilian non-institutional population” or the available work force. Of this number, 158,397,000 were “participating” or working or collecting unemployment benefits. It is this number that the BLS considers in tallying the unemployment rate rather than the total number of working age people.

Of the 158.4 million “participating” in the labor force, 7.8 million were unemployed, (thus, 150.5 million are employed) equaling a rate of 4.9 percent unemployment. However, there are 94 million people who are considered “not in the labor force” — not “participating.” Of the total working age population of 252.4 million people, the percentage of those “not in the labor force” is 37.2 percent. When adding the number of those actually counted as unemployed to those not in the labor force, divided by the total working age population, we arrive at 40.4 percent.

Though perhaps confusing, the simple takeaway is this: 40.4 percent of the working age population of the United States is actually unemployed. We must concede however that some of these “actual unemployed” are stay-at-home-moms, legitimately disabled or, quite frankly, making a living by illegal “cash under the table” means. Determining what percentage of the actual number of unemployed falling under these categories is difficult to discover… but certainly, it’s not enough of an offset to bring that number back to the reported 4.9 percent.

This seems unbelievable, but the numbers are clear… and it gets worse. Of those employed, those listed as part-time workers for economic reasons (meaning they are not choosing to be part-timers), total 5.9 million workers. Thus, of the employed 150.5 million workers, 5.9 million, 3.9 percent are part-time by necessity. Of that same number, another 20.11 million are part-time by choice or 13.3 percent.

Thus, the actual percentage of the workforce that is employed full-time is 49.3 percent... which is why our economy is weak due to “low capacity utilization”.

The BLS does provide a more compressive estimate of such numbers, referring to it as the “labor participation rate.” According to the BLS, the current labor participation rate is 62.7 percent — those employed and seeking employment. This rate is the lowest it’s been since 1978. In 1978, the United States was also coming out of a recession, yet the participation rate was on the rise while the current rate has been on the decline since 2002, dropping dramatically since 2008.

Industry in turmoil

Job losses in the U.S. are being led by the oil and coal industry with 250,000 jobs lost since the oil downturn as of November 2015 according to OilPrice.com. In that same November report, 79 percent of job losses were in the oilfield service industry. More are to come.

But job losses are just one of several indicators of a weakening economy due to low oil prices. Since the beginning of 2015, the number of oil related companies declaring bankruptcy is astonishing. Haynes and Boone LLP, a data research company which tracks bankruptcies, indicated in a February 2016 report that 48 North American oil and gas producers have declared bankruptcy — 23 of those were headquartered in Texas. These companies held an aggregate debt of over $17.3 billion dollars which will go unpaid.

According to the UK Telegraph, “The current oil rout is now worse than any since 1970.” And it is not hard to agree considering total percentage declines in prices and rig counts in the United States alone. From the peak of $115.19 (Brent Crude Benchmark) on June 19th, 2014 to the low of $27.76 on January 18th, 2016, oil prices have lost nearly 76 percent of its value. In nominal dollars (actual prices rather than inflation adjusted) dollars, it’s the lowest oil prices had been since September 2003. When accounting for inflation, prices haven’t been this low since 1999.

Shale play rig counts have dropped more dramatically than anyone could have estimated as well. Nationally, from their high in September 2014 of 1,600 active drilling rigs, as of February 19th, there are 413 active rigs, a national loss of 74.2 percent. Speaking to regional plays, some are in far more trouble than others.

The Bakken is utilizing only 32 rigs, down 83.8 percent from their high count of 198 in September 2014. The play has over 1,000 wells that have been drilled but are sitting, waiting for completion.

The Eagle Ford Basin in Texas is utilizing only 37 rigs, down 81.3 percent from their high count of 214 in April 2014.

The Permian Basin in Texas is utilizing 150 rigs, down 73.1 percent from their high count of 562 in November 2014.

But the problem is not rig count — it is oversupply. And despite low prices, production remains high in all plays. According to EIA data, North Dakota oil production actually rose from September to October, and again in November 2015. From a production high of 1.228 million barrels of oil production per day in December 2014, production is only off 4.8 percent at 1.169 million barrels per day.

Texas production continues to be strong as well having dropped only 6.7 percent after posting a high output in May of 2015 of 3.644 m/bpd, at 3.401 m/bpd in November 2015. Alaska has actually increased output month over month from June to November by a total of 17 percent.

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Adding to the stress of oversupply issues is OPEC which has maintained output at a constant level since the downturn. There is simply more oil supply than there is demand. But worse, demand continues to lag under the pressure of a slowing global economy. As demand creeps forward, supply continues upward, leaving prices depressed for the foreseeable future. Down this path, predictions are that oil prices remain depressed and the global economy faces catastrophe.

The Other Path: The Storm is Over

Despite this laundry list of potential dangers and gloom, the other path, where predictions indicate that the storm is over, oil prices and the economy may be heading toward a net positive, albeit less than stellar recovery. Bloomberg Business made their assumption as to which path the markets will take clear: “Oil is pulling away from the market’s biggest storm in seven years.”

Its assumptions are based on market metrics rather than market models as is the Citi forecast. Bloomberg points to the “Crude Oil Volatility Index” (OVX), a measure of the market’s expectation of the future volatility of crude oil prices. Its number is determined by a mix of technically confusing economic measures, but it has been fairly accurate it measuring future prices. And the Crude OVX has dropped “from the highest level since January 2009” to its lowest level since the first of 2016… and continues to drop. A very good sign. In simple terms, as the OVX decreases, oil prices should increase.

The key mover of this index is projected supply verses projected demand. The single most important factor for the stabilization of oil prices is for demand to outpace growth which it has not done for over two years. Though demand growth is slow, it is still climbing. With Saudi Arabia and Russia reaching an agreement in February to freeze output levels and U.S. production levels beginning to recede, the long term supply forecast appears predicts a drop below demand by the end of the year.

Additionally, U.S. producers are finding ways to make money at these lower prices. The spirit of American innovation in finding efficiencies by way of technological solutions and cuts by way of sound capitalist practices is proving to move break even levels lower to meet depressed prices. Where once shale producers needed $60 - $70 a barrel to profit, they are now profiting at $40 - $45.

Though the “storm is over” scenario carries less weight of evidence than the “Oilmaggedon” scenario, it seems that cautious optimism has finally begun to permeate the industry. A predication as to which scenario will play out in 2016 is wholly dependent upon market factors that can not be predicted.

If demand outpaces supply, the storm is over though we will be in a “lower for longer” price situation, meaning, the aftermath of the downturn will take some time to overcome. If key producers such as OPEC, Russia and the U.S. place pressure on the markets through sustained production, then the weakness of the U.S. economy will result in a final wave of disaster for oil markets. There is no simple final thought to leave here. We are either in the eye of a very large storm or we are in the clean up phase of its aftermath.