NEW YORK (TheStreet) -- Analysts who are concentrating on continuing low oil prices and stockpile surpluses are looking away from oil stocks as a core investment today. But I believe they are missing a generational opportunity to be ahead of the next great boom in oil, which will dominate the energy sector in 2016 and 2017.
As an investor, you need to be ahead of the trend if you are going to take full advantage of it. The surpluses we are now seeing in oil were becoming evident for almost a year before they were recognized by the market in the fall of 2014, causing oil to fall from over $100 a barrel to just under $40 last month. And now, energy is again showing the first signs of a turnaround that investors need to be aware of.
The earliest indications that oil surpluses are beginning to disappear are in evidence everywhere, if you know where to look. These interesting signs of a change in the supply of oil are well ahead of the time when both oil and oil stocks are going to get constructive and start rallying toward the next inevitable oil boom, but just in time to get invested at generationally low prices for both.
We have already seen U.S. production drop by 300,000 barrels a day since it saw its peak in April of this year at over 9.4 million barrels a day, and the Energy Information Administration is expecting another 300,000 barrels a day to come offline in 2016.
The EIA is right about the continuing drop in production, but wrong in its predictions: the number of barrels lost here in the U.S. in 2016 will be much deeper than that.
And there are other indications of production slashes to come. Offshore startup projects in the Gulf of Mexico are at 30-year lows. Canadian production is dropping in Alberta and Saskatchewan.
The oil from thousands of small production "stripper" wells, not accounted for on any official production report, is collapsing. Capital expenditure cuts are even beginning to affect OPEC members. Iraq has warned that it cannot continue to replace its declining wells with the slimmed budgets that the state-run oil companies have been forced to run under.
All of these very early indications combine to tell me that a global oil supply issue is just beginning to brew. And while it will take several more quarters for the effects of a production slowdown to really begin to impact global oil prices, I believe that oil stocks have reached their lows for the next several years.
Well-capitalized domestic exploration and production companies are going to be the big beneficiaries of the next oil boom, as the field of producers in the U.S. and outside OPEC continues to thin through 2015 and 2016. Of the several dozen candidates that one could look at holding for the long haul, I particularly like EOG Resources (EOG) - Get Report, Cimarex (XEC) - Get Report and Hess (HES) - Get Report.
But whatever you choose, you shouldn't mistake what is happening here: a generational opportunity to buy oil stocks before the next inevitable multi-year oil boom begins.
This article is commentary by an independent contributor. At the time of publication, the author held was long EOG.