How is it that oxygen supplementation is contraindicated for pts with obstructive lung diseas?

It is not : I am not sure where you are getting your information from. Oxygen supplementation is not contraindicated in any form of lung disease granted you are hypoxemic ( or low in oxygen). Patients are always told to be cautious since excess oxygen may lead to co2 retention. If your oxygen level is below 88% on pulse oximeter then you need o2 no matter what is the underlying cause for it.

Hypoxic drive: In most patients with advanced chronic obstructive lung disease, chronic hypoxia (low oxygen levels) stimulates their drive to breathe at a faster rate to provide enough oxygen(o2) to the body. Giving supplemental o2 takes away this hypoxic drive that maintains their minute ventilation, thereby risking them going into respiratory failure, especially if their disease is advanced & they have bad pft.