While oil markets haven’t been experiencing much love of late, there’s a strong case to be made based on the fundamentals for the energy sector.

Recently, on Financial Sense Newshour, we spoke with Marshall Adkins, Director of Energy Research at Raymond James, on why he sees a “meaningful upside” for oil prices and how “fake news” is dominating the energy markets currently.

Reductions in Capex Spending May Drive Depletion

We’ve definitely seen capital expenditures (capex) slow, and when we see cuts to international and offshore spending by 50 percent, it’s obviously going to have an impact on the price of oil.

It’s also important to keep in mind that in the case of offshore and international projects, the lead time is very long.

“The spending we’re not doing today actually won’t show in the numbers until 2019 or 2020,” Adkins said. “When it does, we think not only are US producers going to have to satisfy growing global demand but declines from outside the US and declines from offshore.”

It’s hard to gauge what those numbers will look like, but will probably amount to a half-million barrel a day decline in production between 2020 and 2022, Adkins stated.

If demand is growing by 1 million barrels a day, and production is falling by half-a-million barrels a day, US producers are going to have to come up with an additional 1.5 million barrels a day every year for at least 5 to 10 years.

“If you’re not spending the money, depletion is going to hit you,” Adkins said. “Our math shows that by 2020 to 2021, it’s going to be very difficult for the US to grow production 1.5 million a day unless you see meaningfully higher oil prices and more activity than we have today.”

Fake News Drives the Oil Price

Ultimately, sentiment and the way investors digest news about oil markets is helping to push down oil prices right now, Adkins noted. Over the last 9 months as we’ve seen the downturn in oil play out, the downturn itself has created a negative feedback loop, he added.