Oil supply structural underinvestment remains primary driver
The structural bull case for oil and gas equities is driven by a systematic global underinvestment of $1 billion per day in sustaining capital, which will exacerbate production shortfalls later in the decade regardless of near-term geopolitical resolutions.
The argument
The guest argued that while Middle East conflict has front-loaded oil price increases, the underlying thesis is driven by years of deferred sustaining capital. He noted that even if near-term geopolitical tensions resolve and prices temporarily decline, productive capacity destruction in the Gulf will take up to five years to repair, worsening the supply outlook for 2028-2029.
The thesis, stress-tested
✓ What validates it
- ✓Continued low levels of global sustaining capital expenditure in oil and gas
- ✓Persistent high premiums on physical oil cargoes relative to futures prices
▸ Risks discussed
- ▸Near-term price declines if Middle East conflicts resolve quickly
- ▸Political and regulatory hostility toward energy in jurisdictions like Canada and Scandinavia
Hear it yourself
"And the fact that sustaining capital deferred today, needs to be replaced three years from now, in a cost environment where as a consequence of inflation, the input costs are between are rising between 58% a year compounded, which is to say a billion dollars deferred today likes likely cost you a billion 2 to a billion 3 to make three…"
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