2020, page-7

The below has been Adrian's view all along.
The lag effect is the first to be underestimated, the second is how fast stocks like CVN will rise, once the penny drops.



"But in his opinion (Mark Gordon), we are close to entering a new phase of "scarcity", where oil prices will be materially higher and valuation multiples of oil equities will also rise. Partly because the reduction in capex investment by global E&P companies in recent years has been unprecedented in recent history...

To better understand the importance of this point for those who are not familiar with this type of extractive sector, keep in mind that this is an industry in which to simply maintain production levels constant, more capital must be put in each year to find more oil reserves because of oilfield decline and depletion rates. This decline in investment will be manifested in the dearth of new non-OPEC production coming online starting from 2020.

Bear in mind there is a significant lag of a few years between capital spending decisions on conventional non-shale oil projects and its impact on supply. So, the oil market in these years is sort of reaping the fruits of the sowing of several years ago."