Last weekend we reported that “the world’s most bearish hedge fund”, Horseman Global, had charted a specific path to trade the coming bear market, and it went through one commodity – oil, and one industry – shale.

As Clark wrote in his most recent Market View letter, data from the EIA, price action of stocks, and comments and capital market activity “are all pointing to the oil industry beginning to move away from the US onshore. Not in a huge way, but a bit” He then added that when looking at the “brutal and unrelenting economics of US shale oil drilling”, Clark predicted that US oil production would slow and quite possibly contract.

Aside from specific sectors, a slowdown in US oil production and a rise in oil prices, would also have broader economic implications and cause a sharp slowdown in US growth.

For now, this thesis has yet to pan out at the macro level: in fact, as Bloomberg wrote overnight, North American oil and gas producers “are delivering the wrong type of growth” in terms of both what investors, and Horseman, is expecting: too much production, not enough cash.

Earlier this year, many shale explorers pledged to change their ways, reducing spending and returning more to shareholders.

Dividends and share buybacks were the major theme of the first quarter, but then many companies blew through their capital spending budgets in the second quarter. Third-quarter earnings will reveal whether the industry can adhere to its much-touted plan for financial discipline.

The main reason for this is that while pipeline constraints have hampered production from the Permian, companies haven’t stopped drilling resulting in a skyrocketing number of wells awaiting completion and foreshadowing a production deluge – and lower prices – once the pipes are ready next year.

Just as concerning is that while companies blew out their capex estimates, and many expecting to boost their capital spending budgets further next year, they have been unable to produce shale on a regular basis. In fact, at a time when shale producers should be rolling in the green, 2018 has been far from great, at least in the Permian, with many companies burning through cash in the past 12 months.