All too often, the oil market is judged on incredibly short-term metrics. Things like U.S. inventories of crude or refined petroleum products on any given day or an announcement from OPEC can send prices soaring. It's rare that you hear news about the medium- or long-term prospects of the industry and what it could mean for investing in this sector. 

Perhaps one of the best places to get information on the medium- and long-term outlook for the oil and gas market is Schlumberger's (NYSE:SLB) quarterly conference call. In it, CEO Paal Kibsgaard typically gives a long State of the Oil Market address that is a must-read for investors. Here are several of the most salient points Kibsgaard made on the most recent call and what they will likely mean for investors in both Schlumberger and oil in general over the next few years.

offshore oil rig.

Image source: Getty Images.

Business is picking back up

The U.S. oil and gas business has recovered quite nicely from the market downturn just a few years ago. A lot of factors are baked into that recovery -- better drilling techniques, lower services costs, a focus on drilling in the most lucrative basins -- but the thing that allowed the U.S. to orchestrate a speedy turnaround is the short amount of time it takes to drill a shale well.

The rest of the world didn't have the ability to turn the taps on so quickly, but it looks like that is the case. According to Kibsgaard, this past quarter was the first time in years when every major geographic market showed better results. He said:

The broader-based recovery in the international markets has now finally started which led us to record sequential revenue growth in almost all GeoMarkets and nearly all product lines in the second quarter.

Perhaps more importantly, that increase in activity continues to accelerate. Kibsgaard added:

Our tender win rates and backlog increases for integrated drilling projects over the past year is the highest we have ever seen. And based on these project wins, we will in 2018 mobilize a total of 90 land rigs, mostly third party, which by itself is equivalent to a midsize land drilling contractor.

Markets are tightening for service companies

While most producers have been seeing much better results lately, it has partially come at the expense of service companies that have had to bid for work at low rates. That's just the way it is when there is lots of excess equipment out there fighting for a job.

Slowly but surely, though, that excess equipment capacity is getting used up, and it is putting pricing power back in the hands of services companies. According to Kibsgaard, this tightening of the services market is allowing the company to exert pricing pressure on its customers for the first time in years

[T]he ongoing mobilization of all the services needed for our new integrated drilling project will leave us with no spare equipment capacity by the end of 2018. In anticipation of this pending capacity shortage, we have already started to engage in pricing discussions with many of our customers which will allow us to invest in additional capacity. And it will allow our customers to secure this capacity in return for improved commercial terms. In North America land, we continue to deploy additional fracturing fleets during the second quarter, while pricing stayed flat as industry capacity additions matched the growth in customer activity.

Spare capacity? What spare capacity?

For decades, OPEC has held some of its production capacity idle in order to act as a protection against sudden supply or demand shocks and stabilizing prices. This spare capacity has historically been held by a select few members of a 15-country organization, though, namely Saudi Arabia, Kuwait, Iran, and the United Arab Emirates. 

Recently, however, low prices and supply shocks from some of its other member nations have put immense pressure on the larger producers to meet OPEC's target production goals. According to Kibsgaard, meeting the shortfalls from other countries has put us in uncharted territory.

In spite of OPEC's recent decision to increase oil production, the supply base continues to weaken with growing geopolitical pressure to remove Iranian barrels from the market with no apparent resolution to the falling production in Venezuela and with Libyan exports continuing to be mollified. At present, OPEC's spare production capacity is limited to 2.1 million barrels per day from Saudi Arabia, Kuwait, and the UAE which is approaching the lowest level seen in the last two decades.

While the absolute number is somewhat alarming, it becomes even more concerning when you consider that global oil demand has risen considerably over the past two decades, and 2 million barrels per day doesn't mean what it used to. At current demand rates, OPEC holds about 2.2% of global demand in spare capacity. The only time spare capacity was that low over the past century was during Operation Desert Storm in the early 1990s.

I don't want to draw any assumptions about what this could mean for prices in the future because there are too many factors that go into prices. What this says is that there is a clear need for producers to invest in new products and allow OPEC to rebuild its spare capacity.

SLB Chart

SLB data by YCharts.

Long, profitable road ahead

To get to that point at which OPEC can invest in spare production, it is going to take a lot of investment both in and outside OPEC. According to Kibsgaard, producers are going to have to pay the piper for trying to juice more production out of existing sources and not investing in new ones.

[A]fter more than three years of E&P [exploration and production] underinvestment, the international production base has started to show accelerating signs of weakness with noticeable year-over-year production declines in 15 of the world's producing countries. These developments underline the growing need for increased E&P spending, in particular in the international markets, as it is becoming apparent that the new projects coming online over the next few years will likely not be sufficient to meet the increasing demand.

For anyone invested in Schlumberger or any other oil services companies, the words "increased E&P spending" are music to the ear. Schlumberger is likely going to benefit immensely from this trend because it is by far the largest oil services company, and it generates much of its revenue outside of North America. However, its largest competitor, Halliburton, has noted on its earnings releases lately that it is capturing market share in the international market.

Based on the fact that production is starting to decline, though, there is plenty of room for both of these oil services giants at the buffet, especially since the other two major services companies look like a bit of a train wreck. With shares of Schlumberger trading at a similar price to when oil prices hit rock bottom in January of 2016 and its dividend yield at its highest in 25 years, it looks like now is an attractive time to buy.

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.